Liquidity and stock returns: Evidence from the Ho Chi Minh Stock Exchange

Abstract

This study examines the effect of liquidity factor on stock returns on Ho Chi Minh stock exchange using data collected from 2006 to 2014. Results from OLS regression show that, compared to the three-factor model by Fama-French (1993), the three-factor model augmented with liquidity factor can explain stock returns better. This means that investors on stock market require risk premium for the liquidity risk of stocks. In other words, the liquidity factor is taken into account in the stock pricing model by investors.