Is liquidity a pricing factor on the JSE?

Abstract

This paper builds on the findings of previous studies that found size, value and momentum effects to be significant in explaining excess stock returns on the JSE by adding a further potential explanatory factor, namely liquidity. Five liquidity proxies are used: the bid-ask spread, turnover, the price impact measure and two zero return measures. Our findings suggest that while size, value and momentum are significant in explaining excess stock returns on the JSE, liquidity is not found to be significant, irrespective of the type of liquidity measure used.