Investigation of the variable of the illiquidity risk and the effect it’s on the excess of stock return in the stock market

Subject Areas : Journal of Investment Knowledge

Hosein Mohammadpour Zarandi ¹ , S.M. Tabatabaei Mozdabadi ²

1 - Postdoctoral of Economic Science
2 - MA of Educational Administration, lecturer of the university of Applied Science and Technology, (Corresponding author)

Received: 2012-07-07 Accepted : 2012-09-15 Published : 2012-09-15

Keywords: Illiquidity Risk, excess of Stock Return, portfolio, Sock Exchange, Correlation of the Variable,

Abstract :

The current research was carried out to investigate the relationship between risk and return based on the investors’ views. The research, in addition to a thorough investigation of the variable of the illiquidity risk, investigates the effect whereof on the excess of stock return. The research utilized the variables IMV, HML, and SMB for measuring purposes and a portfolio method to reduce the correlational effects of the variables. This longitudinal study completed over a 7-year time span and the analysis of the results stood witness to the significantly positive relationship between the ratio of illiquidity and the excess of stock return. Moreover, the research utilized a mathematical model to investigate the degree of such significance. The research concluded with the analysis of the results of the investigation into the companies’ stocks over the very time span of 7 years (1999-2005).