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dc.contributor.authorChelley-Steeley, Patrìcia Lorraine-
dc.contributor.authorLambertides, Neophytos-
dc.contributor.authorSavva, Christos S.-
dc.contributor.otherΛαμπερτίδης, Νεόφυτος-
dc.contributor.otherΣάββα, Χρίστος Σ.-
dc.identifier.citationJournal of Empirical Finance, 2013, Volume 23, Pages 1-15en_US
dc.description.abstractThis paper extends the smooth transition conditional correlation model by studying for the first time the impact that illiquidity shocks have on stock market return comovement. We show that firms that experience shocks that increase illiquidity are less liquid than firms that experience shocks that decrease illiquidity. Shocks that increase illiquidity have no statistical impact on comovement. However, shocks that reduce illiquidity lead to a fall in comovement, a pattern that becomes stronger as the illiquidity of the firm increases. This discovery is consistent with increased transparency and an improvement in price efficiency. We find that a small number of firms experience a double illiquidity shock. For these firms, at the first shock, a rise in illiquidity reduces comovement while a fall in illiquidity raises comovement. The second shock partly reverses these changes as a rise in illiquidity is associated with a rise in comovement and a fall in illiquidity is associated with a fall in comovement. These results have important implications for portfolio construction and also for the measurement and evolution of market beta and the cost of capital as it suggests that investors can achieve higher returns for the same amount of market risk because of the greater diversification benefits that exist. We also find that illiquidity, friction, firm size and the pre-shock correlation are all associated with the magnitude of the correlation change.en_US
dc.rights© 2013 Elsevier B.V.en_US
dc.subjectSmooth transition modelen_US
dc.subjectStock liquidityen_US
dc.titleIlliquidity shocks and the comovement between stocks: New evidence using smooth transitionen_US
dc.collaborationAston Universityen_US
dc.collaborationCyprus University of Technologyen_US
dc.subject.categoryEconomics and Businessen_US
dc.journalsSubscription Journalen_US
dc.countryUnited Kingdomen_US
dc.subject.fieldSocial Sciencesen_US
dc.publicationPeer Revieweden_US
item.fulltextNo Fulltext-
item.cerifentitytypePublications- of Commerce, Finance and Shipping- of Commerce, Finance and Shipping- of Management and Economics- of Management and Economics- of Management and Economics- of Management and Economics-
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