Stock Liquidity and Stock Price Crash Risk

• Published in: Journal of financial and quantitative analysis Vol. 52; no. 4; pp. 1605 - 1637
• Main Authors: Chang, Xin, Chen, Yangyang, Zolotoy, Leon
• Format: Journal Article
• Language: English
• Published: New York, USA Cambridge University Press 01.08.2017; CAMBRIDGE UNIVERSITY PRESS
• Subjects: Institutional investments; Prices; Quantitative analysis; Skewness; Stock exchanges; Stock prices

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 likeliho...