Stock liquidity and stock price crash risk
We find that stock liquidity increases stock price crash risk. To identify the causal effect, we use the decimalization of stock trading as an exogenous shock to liquidity. This effect is increasing in a firm’s ownership by transient investors and nonblockholders. Liquid firms have a higher likeliho...
| Main Authors: | , , |
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| Format: | Journal Article |
| Language: | English |
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2018
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| Online Access: | https://hdl.handle.net/10356/90182 http://hdl.handle.net/10220/47221 |
| _version_ | 1826125374992416768 |
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| author | Chang, Xin Chen, Yangyang Zolotoy, Leon |
| author_facet | Chang, Xin Chen, Yangyang Zolotoy, Leon |
| author_sort | Chang, Xin |
| collection | NTU |
| description | We find that stock liquidity increases stock price crash risk. To identify the causal effect, we use the decimalization of stock trading as an exogenous shock to liquidity. This effect is increasing in a firm’s ownership by transient investors and nonblockholders. Liquid firms have a higher likelihood of future bad earnings news releases, which are accompanied by greater selling by transient investors, but not blockholders. Our results suggest that liquidity induces managers to withhold bad news, fearing that its disclosure will lead to selling by transient investors. Eventually, accumulated bad news is released all at once, causing a crash. |
| first_indexed | 2024-10-01T06:35:36Z |
| format | Journal Article |
| id | ntu-10356/90182 |
| institution | Nanyang Technological University |
| language | English |
| last_indexed | 2024-10-01T06:35:36Z |
| publishDate | 2018 |
| record_format | dspace |
| spelling | ntu-10356/901822023-03-02T15:37:44Z Stock liquidity and stock price crash risk Chang, Xin Chen, Yangyang Zolotoy, Leon Stock Liquidity Stock Price DRNTU::Business::Operations management We find that stock liquidity increases stock price crash risk. To identify the causal effect, we use the decimalization of stock trading as an exogenous shock to liquidity. This effect is increasing in a firm’s ownership by transient investors and nonblockholders. Liquid firms have a higher likelihood of future bad earnings news releases, which are accompanied by greater selling by transient investors, but not blockholders. Our results suggest that liquidity induces managers to withhold bad news, fearing that its disclosure will lead to selling by transient investors. Eventually, accumulated bad news is released all at once, causing a crash. Published version 2018-12-26T08:38:31Z 2019-12-06T17:42:34Z 2018-12-26T08:38:31Z 2019-12-06T17:42:34Z 2017 Journal Article Chang, X., Chen, Y., & Zolotoy, L. (2017). Stock Liquidity and Stock Price Crash Risk. Journal of Financial and Quantitative Analysis, 52(4), 1605-1637. doi:10.1017/S0022109017000473 0022-1090 https://hdl.handle.net/10356/90182 http://hdl.handle.net/10220/47221 10.1017/S0022109017000473 en Journal of Financial and Quantitative Analysis © 2017 Michael G. Foster School of Business, University of Washington. This paper was published in Journal of Financial and Quantitative Analysis and is made available as an electronic reprint (preprint) with permission of Michael G. Foster School of Business, University of Washington. The published version is available at: [http://dx.doi.org/10.1017/S0022109017000126]. One print or electronic copy may be made for personal use only. Systematic or multiple reproduction, distribution to multiple locations via electronic or other means, duplication of any material in this paper for a fee or for commercial purposes, or modification of the content of the paper is prohibited and is subject to penalties under law. 33 p. application/pdf |
| spellingShingle | Stock Liquidity Stock Price DRNTU::Business::Operations management Chang, Xin Chen, Yangyang Zolotoy, Leon Stock liquidity and stock price crash risk |
| title | Stock liquidity and stock price crash risk |
| title_full | Stock liquidity and stock price crash risk |
| title_fullStr | Stock liquidity and stock price crash risk |
| title_full_unstemmed | Stock liquidity and stock price crash risk |
| title_short | Stock liquidity and stock price crash risk |
| title_sort | stock liquidity and stock price crash risk |
| topic | Stock Liquidity Stock Price DRNTU::Business::Operations management |
| url | https://hdl.handle.net/10356/90182 http://hdl.handle.net/10220/47221 |
| work_keys_str_mv | AT changxin stockliquidityandstockpricecrashrisk AT chenyangyang stockliquidityandstockpricecrashrisk AT zolotoyleon stockliquidityandstockpricecrashrisk |