Skip to main content

The implications of liquidity ratios: Evidence from Pakistan stock exchange limited

Ahmed, Rizwan, ullah, Subhan, Hudson, Robert, Gregoriou, Andros (2023) The implications of liquidity ratios: Evidence from Pakistan stock exchange limited. The Quarterly Review of Economics and Finance, 87 . pp. 235-243. ISSN 1062-9769. (doi:10.1016/j.qref.2020.12.006) (KAR id:103438)


In this paper we test two recently developed liquidity measures the Return-to-Turnover (hereafter RtoTR) proposed by Florackis et al. (2011) and Return-to-Volume (hereafter RtoV) recommended by Amihud, 2002, for 386 companies listed on the Pakistani Stock Exchange (PSX). Our data is obtained from January 2005 to December 2019. We firstly show the Amihud, 2002 ratio has limited ability to distinguish illiquidity from size effects in asset pricing. Second, the Florackis et al. (2011) measure has distinct features to overcome the limitations of the Amihud, 2002 ratio in the PSX. Our results show that the Capital Asset Pricing Model cannot completely account for the significant RtoV premium. However, this weak evidence for the existence of this premium disappears when Fama–French or Carhart alphas are considered as measures of risk-adjusted performance. This suggests that the RtoTR price impact ratio is more effective in the PSX compared to the RtoV ratio. Our findings suggest that both trading frequency and trading cost are significant factors in examining the returns. The RtoV ratio has a negative correlation with the market capitalization, which suggests that small stocks are inherently illiquid.

Item Type: Article
DOI/Identification number: 10.1016/j.qref.2020.12.006
Uncontrolled keywords: Asset pricing, Illiquidity, Price impact ratio and Emerging markets
Subjects: H Social Sciences > HG Finance
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Depositing User: Rizwan Ahmed
Date Deposited: 25 Oct 2023 11:12 UTC
Last Modified: 13 Jan 2024 15:26 UTC
Resource URI: (The current URI for this page, for reference purposes)

University of Kent Author Information

  • Depositors only (login required):

Total unique views for this document in KAR since July 2020. For more details click on the image.