Stock Return Predictability of the Amihud Measure in the Korean Stock Market and Trading Volume

Kang, Jangkoo; Jeong, Giho

doi:2018.47.4.543

Korean J Financ Stud > Volume 47(4); 2018 > Article

Korean Journal of Financial Studies 2018;47(4):543-577.
DOI: https://doi.org/10.26845/KJFS.2018.08.47.4.543 Published online August 31, 2018.

Stock Return Predictability of the Amihud Measure in the Korean Stock Market and Trading Volume

Jangkoo Kang, Giho Jeong

한국 주식시장에서의 Amihud 측도의 주식 수익률 예측과 거래량

강장구, 정기호

KAIST

Abstract

In this paper, we study why the illiquidity measure of Amihud (2002) is positively correlated with future stock returns in the Korean Stock market. Our main empirical findings in this paper are as follows. First, in line with existing literature and global evidence, we verify the fact that there exists a positive correlation between the Amihud measure and future stock returns in the Korean stock market and this positive correlation is not affected when we estimate the Amihud measure only using trading volume, which is consistent with the study of Lou and Shu (2017) on the US market. In other words, only trading volume component of the Amihud measure drives the predictability of stock returns. Second, we find some evidence consistent with the hypothesis that the positive correlation between stock returns and the Amihud measure arises because of mispricing, not because the Amihud measure is a proxy for liquidity. Third, when we estimate the Amihud measure for each investor group, the Amihud measure affects future returns of a stock only when the measure is estimated using the trading volume of individual traders.

Key Words: Amihud 측도,거래량,기대수익률,유동성,가격 왜곡,Amihud Illiquidity Measure,Trading Volume,Expected Return,Liquidity,Mispricing