Transitory prices, resiliency, and the cross-section of stock returns

Jinyong Kim; Yongsik Kim

doi:10.1016/j.irfa.2018.11.009

Transitory prices, resiliency, and the cross-section of stock returns

Jinyong Kim, Yongsik Kim

School of Economics

Korea Exchange

Research output: Contribution to journal › Article › peer-review

8 Scopus citations

Abstract

This paper suggests a new measure of stock market resiliency and demonstrates that resiliency is a dimension of liquidity that generates cross-sectional variations in stock returns. Resiliency is defined as quickness of the transitory price recovery from a liquidity shock. Using the Beveridge-Nelson decomposition and the spectral analysis in the frequency domain, we measure resiliency as the speed of mean reversion of transitory price components. Our main finding is that a zero-investment portfolio long in low-resiliency stocks and short in high-resiliency stocks earns significant abnormal returns. We also find that our resiliency measure is complementary to existing liquidity measures.

Original language	English
Pages (from-to)	243-256
Number of pages	14
Journal	International Review of Financial Analysis
Volume	63
DOIs	https://doi.org/10.1016/j.irfa.2018.11.009
State	Published - May 2019

Keywords

Liquidity
Resiliency
Transitory prices

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10.1016/j.irfa.2018.11.009

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title = "Transitory prices, resiliency, and the cross-section of stock returns",

abstract = "This paper suggests a new measure of stock market resiliency and demonstrates that resiliency is a dimension of liquidity that generates cross-sectional variations in stock returns. Resiliency is defined as quickness of the transitory price recovery from a liquidity shock. Using the Beveridge-Nelson decomposition and the spectral analysis in the frequency domain, we measure resiliency as the speed of mean reversion of transitory price components. Our main finding is that a zero-investment portfolio long in low-resiliency stocks and short in high-resiliency stocks earns significant abnormal returns. We also find that our resiliency measure is complementary to existing liquidity measures.",

keywords = "Liquidity, Resiliency, Transitory prices",

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AU - Kim, Jinyong

AU - Kim, Yongsik

PY - 2019/5

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N2 - This paper suggests a new measure of stock market resiliency and demonstrates that resiliency is a dimension of liquidity that generates cross-sectional variations in stock returns. Resiliency is defined as quickness of the transitory price recovery from a liquidity shock. Using the Beveridge-Nelson decomposition and the spectral analysis in the frequency domain, we measure resiliency as the speed of mean reversion of transitory price components. Our main finding is that a zero-investment portfolio long in low-resiliency stocks and short in high-resiliency stocks earns significant abnormal returns. We also find that our resiliency measure is complementary to existing liquidity measures.

AB - This paper suggests a new measure of stock market resiliency and demonstrates that resiliency is a dimension of liquidity that generates cross-sectional variations in stock returns. Resiliency is defined as quickness of the transitory price recovery from a liquidity shock. Using the Beveridge-Nelson decomposition and the spectral analysis in the frequency domain, we measure resiliency as the speed of mean reversion of transitory price components. Our main finding is that a zero-investment portfolio long in low-resiliency stocks and short in high-resiliency stocks earns significant abnormal returns. We also find that our resiliency measure is complementary to existing liquidity measures.

KW - Liquidity

KW - Resiliency

KW - Transitory prices

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DO - 10.1016/j.irfa.2018.11.009

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SN - 1057-5219

VL - 63

SP - 243

EP - 256

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

ER -

Transitory prices, resiliency, and the cross-section of stock returns

Abstract

Keywords

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