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The positive illiquidity–return relationship (so-called liquidity premium) is a well-established pattern in international developed stock markets. The magnitude of liquidity premium should increase with market illiquidity. Existing studies, however, do not confirm this conjecture with regard to frontier markets. This may result from applying different approaches to the investors' holding period. The paper aims to identify the role of the holding period in shaping the illiquidity–return relationship in emerging and frontier stock markets, which are arguably considered illiquid.

The authors utilise the data on stocks listed on fourteen exchanges in Central and Eastern Europe. The authors regress stock returns on liquidity measures variously transformed to reflect the clientele effect in a liquidity–return relationship.

The authors show that the investors' holding period moderates the illiquidity–return relationship in CEE markets and also show that the liquidity premium in these markets is statistically and economically relevant.

The findings may be of great interest to investors, companies and regulators. Investors and companies should take liquidity into account when making decisions; regulators should employ liquidity-enhancing actions to decrease companies' cost of capital and expand firms' investment opportunities, which will improve growth perspectives for the entire economy.

These findings enrich the understanding of the role that the investors' holding period plays in the illiquidity–return relationship in CEE markets. To the best knowledge, this is the first study which investigates the effect of holding period on liquidity premium in emerging and frontier markets.

This study aims to investigate the relationship between return and liquidity risk and the impact of the prospect theory value (PTV) as a moderator variable on this relationship.

The statistical population of this study is the companies listed on the Tehran Stock Exchange during the years 2006–2019. In this research, the portfolio construction method and alpha analysis of the factor models and the cross-sectional regression of Fama and Macbeth have been used to analyze the data.

The results obtained through the portfolio construction method and the cross-sectional regression of Fama and Macbeth show that there is no significant relationship between return and Amihud (2002) criterion (ILLIQ) as liquidity risk. The PTV also does not affect this relationship, but there is a positive and significant relationship between returns and the turnover ratio (TOR) as liquidity risk. In other words, the lower the TOR (higher liquidity risk), the lower the return. On the other hand, the results showed that the PTV affects this relationship.

To the best of the authors’ knowledge, this study is the first to examine the effect of the PTV on the relationship between return and liquidity risk. It is expected that the results of this study can help investors explain returns better through a deeper understanding of the behavior of investors and their decision-making methods. In other words, by examining the PTV as a proxy for behavioral dimension, we can understand that the relationship between return and liquidity risk can be affected by other dimensions like PTV, so when evaluating risk and return, other influential factors should also be considered.

This paper aims to empirically indicate the factors influencing stock liquidity premium (i.e. the relationship between liquidity and stock returns) in one of the leading European emerging markets, namely, the Polish one.

Various firms’ characteristics and market states are analysed as potentially affecting liquidity premiums in the Polish stock market. Stock returns are regressed on liquidity measures and panel models are used. Liquidity premium has been estimated in various subsamples.

The findings vividly contradict the common sense that liquidity premium raises during the periods of stress. Liquidity premium does not increase during bear markets, as investors lengthen the investment horizon when market liquidity decreases. Liquidity premium varies with the firm’s size, book-to-market value and stock risk, but these patterns seem to vanish during a bear market.

This is one of the first empirical papers considering conditional stock liquidity premium in an emerging market. Using a unique methodological design it is presented that liquidity premium in emerging markets behaves differently than in developed markets.

The purpose of this study is to examine the role of board networks in promoting stock liquidity when there is high economic policy uncertainty using a sample of Brazilian firms from 2002 to 2015.

The study employs the ordinary least squares estimation method with standard errors clustered at the firm level for preliminary analysis, besides the study employs the two-step GMM dynamic estimation method to deal with potential endogeneity issues.

First, the findings show that economic policy uncertainty disproportionately contributes to stock illiquidity and the impact is mainly prominent for high risky companies, small firms and firms in competitive industries. Second, the author provides evidence that board networks promote stock liquidity more via the information channel when economic policy uncertainty is very high.

Given the adverse effects of economic policy uncertainty on stock liquidity, governments need to swiftly communicate and implement policies that affect the capital market to avoid the drying up of liquidity, which is exacerbated by communication or implementation lags. Also, there is a need for the regulators to continuously encourage the inclusion of independent directors in boards, which helps to increase board monitoring capacity and the firms' ability to respond to changes in the external environment.

Unlike other studies that focus on the adverse effects of economic policy uncertainty on firm outcomes, the novel contribution is that the author uncovers the role of board networks in mitigating the negative effects of economic policy uncertainty on stock liquidity.

The purpose of the study is to explore the relationship between bank leverage and stock liquidity.

A simultaneous equations model and a two-stage least squares method were used to find the above-mentioned relationship, using data from all the listed banks of the BRICS countries, for the years 2007-2014.

A decrease in leverage results in lower stock liquidity of the banks. Bank leverage is a significant determinant of stock liquidity, but changes in stock liquidity do not explain the variation in bank leverage. However, in the case of small banks, an increase in stock liquidity results in lower leverage. In the case of large banks, bank leverage and stock liquidity are significant determinants of each other, and the relationship between them is positive.

An increase in high quality capital, as required by the Basel III accord, will result in lower stock liquidity of the banks in emerging markets. However, stock liquidity shocks do not affect the leverage of banks.

To the best of the authors’knowledge, this study is the first one to explore the relationship between leverage and stock liquidity of financial firms. It contributes to the existing literature on bank liquidity and capital structure and helps managers and policy makers to formulate better policies.

The purpose of this paper is to obtain new empirical evidence about the connections between equity trading activity and five possible liquidity determinants: market capitalisation, dividend yield, earnings yield, company growth and the distinction between recently listed firms as opposed to more established ones.

The authors use a sample of 172 stocks from four European markets and estimate models using the entire sample data and different sub-samples to check the relative importance of the above determinants. The authors also conduct a factor analysis to re-classify the variables into a more succinct framework.

The evidence suggests that market capitalisation is the most important trading activity determinant, and the number of years listed ranks thereafter.

The positive relation between trading activity and market capitalisation is in line with prior literature, while the findings relating to the other determinants offer further empirical evidence which is a worthy addition in view of the contradictory results in prior research.

This study is of relevance to practitioners who would like to understand the cross-sectional variation in stock liquidity at a more detailed level.

The originality of the paper rests on two important grounds: the authors focus on trading turnover rather than on other liquidity proxies, since the former is accepted as an important determinant of the liquidity-generation process, and the authors adopt a rigorous approach towards checking the robustness of the results by considering various sub-sample configurations.

The main purpose of this study is to examine whether economic policy uncertainty affects the stock liquidity. Furthermore, this study explores the influencing factors, transmission mechanism and solution path between economic policy uncertainty and the stock liquidity.

A data set comprising 97,729 firm-quarter observations of Chinese firms with A-shares listed on the Shenzhen and Shanghai stock exchanges was selected, China's economic policy uncertainty was measured by using the China Economic Policy Uncertainty Index and the impact of economic policy uncertainty on the stock liquidity over the period 2004–2017 was empirically tested. The empirical analysis was based on ordinary least square regression model, and mediation and moderation effect models were used in the further analysis.

The empirical results show that the higher the economic policy uncertainty, the lower the stock liquidity, which is more significant in firms with an opaque information environment, less investor attention and weak risk resistance ability. The authors argue that the transmission mechanism can be explained by the quality of information disclosure and investor sentiment. Moreover, the negative impact of economic policy uncertainty on the stock liquidity can be mitigated by increasing voluntary disclosures.

This study enriches the literature on factors affecting the stock liquidity from the perspective of macroeconomic policy and provides a reference for policymakers to formulate relevant measures to improve the stock liquidity in emerging markets.

Behavioral finance and market microstructure studies suggest that the investor sentiment and liquidity are related. This paper aims to examine the aggregate sentiment–liquidity relationship in emerging markets (EMs) for both the sample period and crisis period. Then, it verifies this relationship, using the asymmetric sentiment.

This study uses a sample consisting of stocks listed on the SSE Shanghai composite index (348 stocks), the JKSE (118 stocks), the IPC (14 stocks), the RTS (12 stocks), the WSE (106 stocks) and FTSE/JSE Africa (76 stocks). This is for the period ranging from February, 2002 until March, 2021 (230 monthly observations). We use the panel data and apply generalized method-of-moments (GMM) of dynamic panel estimators.

The empirical analysis shows the following results: first, it demonstrates a significant relationship between the aggregate investor sentiment and the stock market liquidity for the sample period and crisis one. Second, referring to the asymmetric sentiment, we have empirically given proof that the market is significantly more liquid in times of the optimistic sentiment than it is in times of the pessimistic sentiment. Third, using panel causality tests, we document a unidirectional causality between the investor sentiment and liquidity in a direct manner through the noise traders and the irrational market makers and also a bidirectional causality in an indirect channel.

The results reported in this paper have implications for regulators and investors in EMs. Firstly, the study informs the regulators that the increases and decreases in the stock market liquidity are related to the investor sentiment, not financial shocks. We empirically evince that the traded value is higher in the crisis. Secondly, we inform insider traders and rational market makers that the persistence of increases in the trading activity in both quiet and turbulent times is associated with investor participants such as noise traders and irrational market makers.

The originality of this work lies in employing the asymmetric sentiment (optimistic/pessimistic) in order to denote the sentiment–liquidity relationship in EMs for the sample period and the 2007–2008 subprime crisis.

The purpose of this paper is to provide some rational perspectives for the flight‐to‐liquidity event rather than simply attributing it to the change in investor sentiment.

The paper builds a model to highlight the inherent difference in investors' investment horizon, and thus their sensitivity to changes in transaction costs in the stock and bond markets. When stock market deterioration results in higher trading costs, the existing marginal investor shifts wealth to bonds instead of remaining indifferent between stocks and bonds. At the new equilibrium, there is a higher fraction of bond ownership and a longer average investment horizon among stock holders. The paper then empirically tests the model predictions using data in the US stock and bond markets.

The authors find evidence strongly supporting this paper's theoretical predictions. Days with high stock illiquidity, high stock volatility and low stock return are associated with high yield spread in the bond market. This contemporaneous linkage between the stock market and the bond market is even stronger during periods with strong net outflows from stock mutual funds and strong net inflows to money market funds. The paper also demonstrates the existence of a maturity pattern that the predicted effects, especially the effects of stock illiquidity, are much stronger over shorter maturities.

The finding of this model that the investment horizon of the marginal investor (and thus the equilibrium price impact in the bond market) responds to changes in market conditions contributes to the theoretical debate on whether transaction costs matter. The flow evidence strengthens our understanding of the asset pricing implications of portfolio rebalancing decisions, and the maturity effect bolsters the case for flights to liquidity/quality due to heterogeneity in investment horizon without resorting to investor irrationality or behavioral attributes. In fact, it is arguably difficult to reconcile with a behavioral explanation.

This study analyzes the relationship between governance and stock liquidity. It uses different variables of corporate board characteristics and test three proxies of a bid-ask spread. It also provides comprehensive and robust evidence for the association between the corporate board and stock liquidity in the pure order-driven Tunisian market.

This study is based on a sample covering all financial firms in Tunisia (banks, insurances and leasing companies) from 2008 to 2019. It employs a panel data approach.

The author finds a negative relationship between board sizes, financial institutional members in corporate board and bid-ask spread (absolute, relative and effective spread). The author suggests that better-managed firms have greatly improved their stock liquidity and lower trading cost. The empirical results reveal that better corporate governance firms improve stock liquidity since it is associated with higher information disclosure.

This research encourages Tunisian firms to develop their governance mechanisms and restructure their board organization to improve stock liquidity. It can support the regulators to simultaneously design appropriate governance recommendations, disclosure policies and trading regulations.

The author presents empirical evidence of the role of corporate board on the bid-ask spread in an emerging market. The research is the first to analyze the corporate board characteristics using seven variables representatives of the board of directors and without using the governance index.