Asymmetric Price Impacts and the Cross-Section of Stock Returns in the Korean Stock Market

Kang, Jangkoo; Sim, Myounghwa

Korean Journal of Financial Studies 2014;43(2):327-358.
Published online April 30, 2014.

Jangkoo Kang, Myounghwa Sim

한국 주식시장의 매도, 매수 유동성 비대칭에 대한 연구

강장구, 심명화

Abstract

We investigate the differential effects of buy- and sell-order price impacts on the cross-section of expected stock returns in the Korean stock market, and document the followings. First, sell-side impacts exceed buy-side impacts on average, and this difference in sell- and buy-order price impacts is more pronounced among small and value firms. Second, sell-order illiquidity is priced more significantly than buy-order illiquidity in the cross-section. Stocks with higher sell-order price impacts have higher expected returns than those with lower sell-order price impacts. In contrast, we find little evidence of a premium for buy-order illiquidity. These results indicate that illiquidity premium documented in the Korean stock market is largely due to sell-order illiquidity. Lastly, there appears to be a premium associated with the asymmetry between sell- and buy-order illiquidity. Stocks with greater differences in price impacts between sales and purchases significantly have higher expected returns. Investors may require additional compensation for the asymmetry between the sell- and buy-order illiquidity in the Korean stock market.

Key Words: 가격충격,위험요인,유동성 비대칭,유동성 프리미엄,자산가격결정,Asset Pricing,Asymmetry,Illiquidity Premium,Price Impacts,Risk Factor