The Relationship between Specific Fluctuations, Liquidity Risk, and Stock Return in Listed Companies on Tehran Stock Exchange

Document Type : Accounting

Authors

• Zahra Farhadi
• Mohammad Vahdani
• Abdolhossein Talebi Najafabadi
• Narjes Kamali Kermani

University of bojnord

10.22067/ijaaf.v3i1.79022

Abstract

The main purpose of this research is to investigate the relationship between specific fluctuations, liquidity risk and stock returns in companies listed in Tehran Stock Exchange. This research reveals the importance of information such as special fluctuations and liquidity risk and their role in determining the additional return on portfolios of companies to assist decision making of actual and potential investors in the stock market.
In order to investigate purpose of this research, quarterly financial information of 152 companies among companies listed in Tehran Stock Exchange during the period 2012-2016 was examined. After collecting the required research data, panel data was used to test the hypotheses. Also, Eviews software has been used to test hypotheses. The results showed that special fluctuations have a positive and significant impact on liquidity risk and stock return. In addition, results showed that no reliable evidence indicating the impact of liquidity risk on stock return was found at 95% significance level.

Keywords

• special fluctuations
• liquidity risk
• Fama–French three-factor model
• Stock return

---

References

Abolqasemi, A. R. (2010). Relationship between portfolio stock returns and its financial ratios in Tehran Stock Exchange Between 1999 and 2008; Master’s thesis, Islamic Azad University of Arak.

Babalooyan, Sh., and Mozafari, M. (2016). Comparison of prediction power of Fama and French five-factor model with Carhart four-factor model and HXZ q-factor model in explaining stock returns. Financial Knowledge of Analysis of Securities, 9 (30), pp. 17-32.

Carhart, M. M. (1992). On Persistence in Mutual Fund Performance.The Journal of Finance, 52 (1), pp. 57-82.

Fama, E. F. and French, K. R. (1992). The Cross-Section of Expected Stock Returns. The Journal of Finance, 47 (2), pp. 427-465.

Fama E., and French K. (1993). Common risk factors in the return on stocks and bonds, Journal of Financial Economics, 33, pp. 3-56.

Fama, E. F. and French, K. R., (2015). A-five factor Asset-Pricing Model. Journal of Financial Economics, April, 116 (1), pp. 1-22.

Hou, K., Xue, C. and Lu, Z. (2014). A Comparison of New Factor Models. NBER Working Paper No. 20682, November.

Islami Bidgoli, Gh. R., and Honardoost, A. (2012). Fama and French three-factor model and liquidity risk: evidence from Tehran Stock Exchange. Investment Knowledge Quarterly, year 1, No. 2, pp. 97-116.

Izadinia, N., Ebrahimi, M., and Hajian Nejad, A. (2014). Comparison of the main Fama and French three-factor model with the main four-factor Carhart model in explaining stock returns of companies listed in Tehran Stock Exchange. Research Journal of Asset Management and Finance, 2 (3), pp. 17-28.

Khatami, Z. (2016). Investigating the ability to estimate returns using capital asset pricing model and capital asset pricing model based on consumption in companies listed in Tehran Stock Exchange, Master’s thesis, Urmia University.

Kimiagari, A. M., Islami Bidgoli, Gh., and Eskandari, M. (2007). Investigating the relationship between risk and return in Tehran Stock Exchange based on Fama and French three-factor model. 9 (2), pp. 61-82.

Lina, J. B., and Su, P.Y. (2017). Idiosyncratic Volatility and Liquidity Risk: How they have Explanatory Power in Stock Returns. Journal of Applied Finance & Banking, 7 (1), pp. 41-61.

Lintner, J. (1965). The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets. Review of Economics and Statistics, February, 47 (1), pp. 13-37.

Lischewski, J., and Voronkova, S. (2012). Size, value and liquidity. Do They Really Matter on an Emerging Stock Market? Emerging Markets Review. 13, pp. 8-25

Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. 19 (3), pp. pp. 425-442.

Mojtahed Zadeh, V., and Taremi, M. (2006). Testing Fama and French three-factor model in Tehran Stock Exchange to predict stock returns; Message of Management, No. 18, pp. 109-132.

Pourzamani, Z., and Bashiri, A. (2013). Testing Carhart model for prediction of expected returns separated in terms of growth stocks and value stocks. Financial Engineering and Securities Management, (16), pp. 93-107.

Qalibaf asl, Hasan and Karimi, Mehdi (2012). Investigating pricing on liquidity, size, value and market risk in Tehran Stock Exchange. Quarterly Journal of Stock Exchange, year 5, No. 17, pp. 85-105.

Salehi, A. K., Hezbi, H., and Salehi, B. (2014). Fama and French five-factor model: a new model for measuring stock returns. Accounting Research, (15), pp. 109-120.

Spierts, J. P. (2018). An examination of the cross-sectional relationship of beta and return in international stock returns: evidence from emerging and developed markets. Available at: bibliotecadigital.fgv.br

Yahyazadefar, M., Shams, Sh., and Larimi, S. J. (2010). Investigating the relationship between liquidity and stock return in Tehran Stock Exchange. Financial Research, 12 (29), pp. 111-128.