The Effect of Information Quality on Liquidity Risk
I investigate whether information quality affects the cost of equity capital through liquidity risk. Liquidity risk is the sensitivity of stock returns to unexpected changes in market liquidity; recent asset pricing literature has emphasized the importance of this systematic risk. I find that higher...
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| Format: | text |
| Language: | English |
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Institutional Knowledge at Singapore Management University
2011
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| Online Access: | https://ink.library.smu.edu.sg/soa_research/877 https://ink.library.smu.edu.sg/context/soa_research/article/1876/viewcontent/SSRN_id1097382.pdf |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | I investigate whether information quality affects the cost of equity capital through liquidity risk. Liquidity risk is the sensitivity of stock returns to unexpected changes in market liquidity; recent asset pricing literature has emphasized the importance of this systematic risk. I find that higher information quality is associated with lower liquidity risk and that the reduction in cost of capital due to this association is economically significant. I also find that the negative association between information quality and liquidity risk is stronger in times of large shocks to market liquidity. |
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