Stock liquidity and stock price crash risk

Chang, Xin, Chen, Yangyang and Zolotoy, Leon 2017, Stock liquidity and stock price crash risk, Journal of financial and quantitative analysis, vol. 52, no. 4, pp. 1605-1637, doi: 10.1017/S0022109017000473.

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Title Stock liquidity and stock price crash risk
Author(s) Chang, XinORCID iD for Chang, Xin
Chen, Yangyang
Zolotoy, Leon
Journal name Journal of financial and quantitative analysis
Volume number 52
Issue number 4
Start page 1605
End page 1637
Total pages 33
Publisher Cambridge University Press
Place of publication Cambridge, Eng.
Publication date 2017-08
ISSN 0022-1090
Summary We find that stock liquidity increases stock price crash risk. To identify the causal effect, we use the decimalization of stock trading as an exogenous shock to liquidity. This effect is increasing in a firm's ownership by transient investors and nonblockholders. Liquid firms have a higher likelihood of future bad earnings news releases, which are accompanied by greater selling by transient investors, but not blockholders. Our results suggest that liquidity induces managers to withhold bad news, fearing that its disclosure will lead to selling by transient investors. Eventually, accumulated bad news is released all at once, causing a crash.
Language eng
DOI 10.1017/S0022109017000473
Field of Research 1502 Banking, Finance And Investment
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2017, michael G. Foster School of Business, University of Washington
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Document type: Journal Article
Collections: Faculty of Business and Law
Department of Finance
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Created: Thu, 30 Nov 2017, 11:26:10 EST

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