Predicting US recessions with stock market illiquidity

Shiu Sheng Chen; Yu Hsi Chou; Chia Yi Yen

doi:10.1515/bejm-2015-0009

Predicting US recessions with stock market illiquidity

Shiu Sheng Chen, Yu Hsi Chou^*, Chia Yi Yen

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

11 Citations (Scopus)

Abstract

In this paper, we investigate the dynamic link between recessions and stock market liquidity by examining the predictive content of illiquidity for US recessions. After controlling for other commonly featured recession predictors such as term spreads and credit spreads, we find that the illiquidity measure proposed by (Amihud, Y. 2002. "Illiquidity and Stock Returns: Cross-Section and Time-Series Effects." Journal of Financial Markets 5: 375-340) has strong power in predicting recessions. Moreover, the predictability of the illiquidity measure of small firms is found to be stronger than that of large firms, which supports the hypothesis of "flight to liquidity.

Original language	English
Pages (from-to)	93-123
Number of pages	31
Journal	B.E. Journal of Macroeconomics
Volume	16
Issue number	1
DOIs	https://doi.org/10.1515/bejm-2015-0009
Publication status	Published - 2016 Jan 1
Externally published	Yes

Keywords

Probit model
Recession
Stock market illiquidity

ASJC Scopus subject areas

Economics and Econometrics

Access to Document

10.1515/bejm-2015-0009

Cite this

@article{ef5c61dc75cf49d5adc3cbc8d4d2a1ee,

title = "Predicting US recessions with stock market illiquidity",

abstract = "In this paper, we investigate the dynamic link between recessions and stock market liquidity by examining the predictive content of illiquidity for US recessions. After controlling for other commonly featured recession predictors such as term spreads and credit spreads, we find that the illiquidity measure proposed by (Amihud, Y. 2002. {"}Illiquidity and Stock Returns: Cross-Section and Time-Series Effects.{"} Journal of Financial Markets 5: 375-340) has strong power in predicting recessions. Moreover, the predictability of the illiquidity measure of small firms is found to be stronger than that of large firms, which supports the hypothesis of {"}flight to liquidity.",

keywords = "Probit model, Recession, Stock market illiquidity",

author = "Chen, {Shiu Sheng} and Chou, {Yu Hsi} and Yen, {Chia Yi}",

note = "Publisher Copyright: {\textcopyright} 2016 by De Gruyter.",

year = "2016",

month = jan,

day = "1",

doi = "10.1515/bejm-2015-0009",

language = "English",

volume = "16",

pages = "93--123",

journal = "B.E. Journal of Macroeconomics",

issn = "1935-1690",

publisher = "Berkeley Electronic Press",

number = "1",

}

TY - JOUR

T1 - Predicting US recessions with stock market illiquidity

AU - Chen, Shiu Sheng

AU - Chou, Yu Hsi

AU - Yen, Chia Yi

PY - 2016/1/1

Y1 - 2016/1/1

N2 - In this paper, we investigate the dynamic link between recessions and stock market liquidity by examining the predictive content of illiquidity for US recessions. After controlling for other commonly featured recession predictors such as term spreads and credit spreads, we find that the illiquidity measure proposed by (Amihud, Y. 2002. "Illiquidity and Stock Returns: Cross-Section and Time-Series Effects." Journal of Financial Markets 5: 375-340) has strong power in predicting recessions. Moreover, the predictability of the illiquidity measure of small firms is found to be stronger than that of large firms, which supports the hypothesis of "flight to liquidity.

AB - In this paper, we investigate the dynamic link between recessions and stock market liquidity by examining the predictive content of illiquidity for US recessions. After controlling for other commonly featured recession predictors such as term spreads and credit spreads, we find that the illiquidity measure proposed by (Amihud, Y. 2002. "Illiquidity and Stock Returns: Cross-Section and Time-Series Effects." Journal of Financial Markets 5: 375-340) has strong power in predicting recessions. Moreover, the predictability of the illiquidity measure of small firms is found to be stronger than that of large firms, which supports the hypothesis of "flight to liquidity.

KW - Probit model

KW - Recession

KW - Stock market illiquidity

UR - http://www.scopus.com/inward/record.url?scp=84954320348&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84954320348&partnerID=8YFLogxK

U2 - 10.1515/bejm-2015-0009

DO - 10.1515/bejm-2015-0009

M3 - Article

AN - SCOPUS:84954320348

SN - 1935-1690

VL - 16

SP - 93

EP - 123

JO - B.E. Journal of Macroeconomics

JF - B.E. Journal of Macroeconomics

IS - 1

ER -

Predicting US recessions with stock market illiquidity

Abstract

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Cite this