Doctoral thesis

Essays on liquidity and asset pricing


105 p

Thèse de doctorat: Università della Svizzera italiana, 2014

English The thesis is comprised of two parts. First part is devoted to liquidity of the stock market and its interaction with holding horizon. I start from investigating relative importance of liquidity level and liquidity risk. I find that liquidity level is more important for explaining stock returns. I notice that liquidity risk gains some explanatory power during recent decade, and it seems to be attributed to the 2008 financial crisis and to trading tick decrease in 2000. Further, I investigate relationship between liquidity and the investment holding horizon. I find that liquid stocks are traded by short term investors and illiquid by long term investors. Finding holds for a battery of liquidity measures. Regarding relationship of liquidity risk with the holding horizon I discover that short term investors increase liquidity risk of the stocks they hold. The second part investigates the shape of the pricing kernel. Using nonparametric approach we estimate pricing kernel. We propose two tests of monotonicity of the pricing kernel. The monotonicity of the pricing kernel cannot be rejected by our tests and hence we confirm that pricing kernel is in agreement with economic theory.
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