Le Dinamiche dell'Illiquidità del Mercato Italiano

This paper investigates the evolution of the stock market illiquidity in Italy during the period 2005-2013 and its relationship with securities' returns. The aggregate illiquidity measure adopted for the empirical analysis is the average, across stocks, of the daily ratio of absolute stock return to dollar volume, which was introduced by the seminal work of Amihud (2002). It is shown that over time, expected aggregate market illiquidity positively affects ex ante stock excess return, suggesting that expected stock excess return partly represents a premium for illiquidity. Then, stock returns appear to be negatively related over time to contemporaneous unexpected illiquidity. Furthermore, the positive relation between illiquidity and returns is finally studied from the individual perspective by forming portfolios based on the liquidity levels of single assets: a relevant ¿liquidity effect¿ is detected within the Italian equity market. July 2013 Keywords: Liquidity and Asset Pricing; Persistence; Liquidity premium;