Micro(structure) before macro? The predictive power of aggregate illiquidity for stock returns and economic activity Academic Article

abstract

• 2018 Elsevier B.V. This paper constructs and analyzes various measures of trading costs in US equity markets covering the period 19262015. These measures contain statistically and economically significant predictive signals for stock market returns and real economic activity. We decompose illiquidity proxies into a component capturing aggregate volatility and a residual. The predictive content of these components differs in important ways. Specifically, we find strong evidence that the component of illiquidity uncorrelated with volatility forecasts stock market returns. Both the volatility and residual components of illiquidity contain information regarding future economic activity.

authors

• Chen, Yong

published proceedings

• Journal of Financial Economics

altmetric score

• 9.5

author list (cited authors)

• Chen, Y., Eaton, G. W., & Paye, B. S.

citation count

• 33

complete list of authors

• Chen, Yong||Eaton, Gregory W||Paye, Bradley S

publication date

• January 2018

publisher

• Elsevier  Publisher

published in

• Journal of Financial Economics  Journal

keywords

• Equity Premium
• Macroeconomic Forecasts
• Stock Market Liquidity
• Stock Return Predictability
• Transactions Costs

Digital Object Identifier (DOI)

• 10.1016/j.jfineco.2018.05.011

start page

• 48

end page

• 73

volume

• 130

issue

• 1

URL

• http://dx.doi.org/10.1016/j.jfineco.2018.05.011