Liquidity and Asset Pricing: Evidence on the Role of Investor Holding Period

By Randi Næs, Ministry of Trade and Industry, and Bernt Arne Ødegaard, University of Stavanger and Norges Bank

Abstract

We use data on actual holding periods for all investors in a stock market over a 10-year period to investigate the links between holding periods, liquidity, and asset returns. Microstructure measures of liquidity are shown to be important determinants of the holding period decision of individual investors. Average holding periods differ across different investor types. Turnover is an imperfect proxy for holding period. While both turnover and spread are related to stock returns, holding period is not.

Paper

Paper (pdf) (Mar 2009)
Norges Bank Working Paper 2007/11 (older version)

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