Trading frequency and asset pricing on the London Stock Exchange: Evidence from a new price impact ratio

By Chris Florackis, Andros Gregoriou, Alexandros Kostakis. 2011

144 citations recorded by the source corpus.

This study proposes a new price impact ratio as an alternative to the widely used Amihud’s (2002) Return-to-Volume ratio. We demonstrate that the new price impact ratio, which is deemed Return-to-Turnover ratio, has a number of appealing features. Using daily data from all stocks listed on the London Stock Exchange over the period 1991–2008, we provide overwhelming evidence that this ratio, while being unequivocal to construct and interpret, is also free of a size bias. More importantly, it encapsulates the stocks’ cross-sectional variability in trading frequency, a relatively neglected but possibly important determinant of stock returns given the recently observed trends in financial markets. Overall, our findings argue against the conventional wisdom that there is a simple direct link between trading costs and stock returns by strongly suggesting that it is the compound effect of trading frequency and transaction costs that matters for asset pricing, not each aspect in isolation.

Subfields: Economics and Econometrics, Finance, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/17061a5ef4f0f7a9f7b000be87e91e5b14a4fe4d

Citations in the corpus

• Board structure and corporate risk taking in the UK financial sector (2017, unknown): “First, for the calculation of the corporate risk measure of individual firms, this study requires all the sample firms to have at least 36 months of consecutive monthly stock market returns data (Cheng, 2008; Florackis et al., 2011).”