Reassessing the Illiquidity-Return Relationship: Evidence from Germany, the UK, and the U.S.
Publication date
2025-10
Authors
Paul, Thomas
Aryoubi, Abdullah
Walther, Thomas
Editors
Advisors
Supervisors
Document Type
Article
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cc_by
Abstract
We investigate the relationship between market illiquidity and excess returns in the stock markets of Germany, the UK, and the U.S. from 1999 to 2022. Despite the growing criticism of this relationship, we show that illiquidity still is a significant factor, especially when we distinguish between stable and crisis periods. Unexpected illiquidity is negatively related to returns in all periods, while the effect of expected illiquidity differs over time. Our results are robust to various variations of Amihud's illiquidity measure.
Keywords
Asset pricing, Excess return, Financial turmoil, Illiquidity, Portfolio management, Structural breaks, Finance, Economics and Econometrics
Citation
Paul, T, Aryoubi, A & Walther, T 2025, 'Reassessing the Illiquidity-Return Relationship: Evidence from Germany, the UK, and the U.S.', International Review of Financial Analysis, vol. 106, 104469. https://doi.org/10.1016/j.irfa.2025.104469