Testing seasonality in the liquidity–return relation: Japanese evidence

Abstract

We study liquidity (share turnover) effects of stock returns and their seasonality using Japanese data. We find a significant and negative turnover/return relation. Moreover, we find that the liquidity effect is not impacted by either January or June seasonality. There is weak evidence that stocks with higher liquidity risk have on average higher rates of return for non-June months.

Notes

¹Examining markets other than the United States is important to provide convincing out-of-sample tests of asset pricing relationships (Lo and MacKinlay, 1990). The Japanese market provides an ideal setting for assessing the external validity of US findings. For example, see Daniel et al. (2001).

²We apply a filtering rule in which each stock must have at least 24 valid return observations over the prior 60 months.