Analysis of the Impact of Trading Liquidity on the Development of Investment Time Horizon on the Example of the Warsaw Stock Exchange

The importance of liquidity has been acknowledged for a long time now. Liquidity is defined as the ease with which an asset can be converted into cash. A considerable number of studies investigated stock liquidity providing evidence that more illiquid stocks yield higher returns which include an ill...

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Main Author: Agata Gniadkowska-Szymańska
Format: Article
Language:English
Published: Lodz University Press 2016-12-01
Series:Acta Universitatis Lodziensis. Folia Oeconomica
Subjects:
Online Access:https://czasopisma.uni.lodz.pl/foe/article/view/671
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spelling doaj-1f036e0379a2478c827860f97eef83982020-11-25T01:14:57ZengLodz University PressActa Universitatis Lodziensis. Folia Oeconomica0208-60182353-76632016-12-01432410.18778/0208-6018.324.09389Analysis of the Impact of Trading Liquidity on the Development of Investment Time Horizon on the Example of the Warsaw Stock ExchangeAgata Gniadkowska-Szymańska0University of Lodz, Faculty of Economics and Sociology, Department of Economics of Industry and Capital MarketsThe importance of liquidity has been acknowledged for a long time now. Liquidity is defined as the ease with which an asset can be converted into cash. A considerable number of studies investigated stock liquidity providing evidence that more illiquid stocks yield higher returns which include an illiquidity premium. According to Amihuda and Mendelson (1986b: 43–48), a required rate of return on the shares (gross, i.e. after taking into account the cost of liquidity) should increase with increasing liquidity, but the marginal increase should decrease with an increasing investment horizon, thus decreasing the likelihood of premature termination of the investment. As a result, investors with different investment horizons may require different rates of return per unit of time from the same shares (Huang 2003: 104–129). Investor horizon is the time period for which an investor holds a stock. Most of the research conducted on investment horizon links it to liquidity, supporting the thesis that it is negatively related to liquidity. “Transaction costs and the holding periods for common stocks” written by Atkins and Dyl (1997: 309–325) is one of the first papers to investigate the effects of liquidity on holding period. The aim of this study is to show the dependencies occurring between the phenomena of investment horizon and asymmetric information and the liquidity of shares of a company.https://czasopisma.uni.lodz.pl/foe/article/view/671asymmetric informationliquidity of sharesclientele effectthe investment horizon
collection DOAJ
language English
format Article
sources DOAJ
author Agata Gniadkowska-Szymańska
spellingShingle Agata Gniadkowska-Szymańska
Analysis of the Impact of Trading Liquidity on the Development of Investment Time Horizon on the Example of the Warsaw Stock Exchange
Acta Universitatis Lodziensis. Folia Oeconomica
asymmetric information
liquidity of shares
clientele effect
the investment horizon
author_facet Agata Gniadkowska-Szymańska
author_sort Agata Gniadkowska-Szymańska
title Analysis of the Impact of Trading Liquidity on the Development of Investment Time Horizon on the Example of the Warsaw Stock Exchange
title_short Analysis of the Impact of Trading Liquidity on the Development of Investment Time Horizon on the Example of the Warsaw Stock Exchange
title_full Analysis of the Impact of Trading Liquidity on the Development of Investment Time Horizon on the Example of the Warsaw Stock Exchange
title_fullStr Analysis of the Impact of Trading Liquidity on the Development of Investment Time Horizon on the Example of the Warsaw Stock Exchange
title_full_unstemmed Analysis of the Impact of Trading Liquidity on the Development of Investment Time Horizon on the Example of the Warsaw Stock Exchange
title_sort analysis of the impact of trading liquidity on the development of investment time horizon on the example of the warsaw stock exchange
publisher Lodz University Press
series Acta Universitatis Lodziensis. Folia Oeconomica
issn 0208-6018
2353-7663
publishDate 2016-12-01
description The importance of liquidity has been acknowledged for a long time now. Liquidity is defined as the ease with which an asset can be converted into cash. A considerable number of studies investigated stock liquidity providing evidence that more illiquid stocks yield higher returns which include an illiquidity premium. According to Amihuda and Mendelson (1986b: 43–48), a required rate of return on the shares (gross, i.e. after taking into account the cost of liquidity) should increase with increasing liquidity, but the marginal increase should decrease with an increasing investment horizon, thus decreasing the likelihood of premature termination of the investment. As a result, investors with different investment horizons may require different rates of return per unit of time from the same shares (Huang 2003: 104–129). Investor horizon is the time period for which an investor holds a stock. Most of the research conducted on investment horizon links it to liquidity, supporting the thesis that it is negatively related to liquidity. “Transaction costs and the holding periods for common stocks” written by Atkins and Dyl (1997: 309–325) is one of the first papers to investigate the effects of liquidity on holding period. The aim of this study is to show the dependencies occurring between the phenomena of investment horizon and asymmetric information and the liquidity of shares of a company.
topic asymmetric information
liquidity of shares
clientele effect
the investment horizon
url https://czasopisma.uni.lodz.pl/foe/article/view/671
work_keys_str_mv AT agatagniadkowskaszymanska analysisoftheimpactoftradingliquidityonthedevelopmentofinvestmenttimehorizonontheexampleofthewarsawstockexchange
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