初探 Amihud 流動性指標對景氣循環之預測力

Abstract

In this paper, we discuss the relation between liquidity and the business cycle.There are some reasons that we should link liquidity with the business cycle. The“flight to liquidity” or “flight to quality” hypothesis might be the most important one. It is more likely that an investor shifts his portfolio from those stocks with lower liquidity or higher risk when the economy is in a recession.Instead of business cycle measures, we use the NBER recession signal as the proxy of real economy. We apply dynamic and static probit model to monthly liquidity proxy, because the NBER recession is not always available in current period. Besides we use Amihud (2002) ILR as our liquidity proxy.The dynamic probit model with liquidity added does not result in a significance improvement on prediction. No matter in sample or out of sample, the pure dynamic probit model performs well with itself history only. However, as we mentioned earlier, NBER recession signal is usually announced well until the recession has happened for months, leading to an infeasibility to implement dynamic model. On the other hand, liquidity plays an important role in static probit model. We find a robust positive relation between liquidity and recession. Adding liquidity as a predictor in the static model would significantly improve the forecast accuracy in th short horizon. This observation remains robust with comparison to other financial variables ( e.g. term spread, credit spread, market volatility, and excess return). We also find the existence of “size effect” that small firm is more sensitive to future recession. Our finding above is consistent with our claims of “flight to liquidity; that is, it is more likely for market participants to shift his portfolio from those stock with lower liquidity or higher risk in advance when the economy would be in a recession. The primary contribution of this paper is that liquidity proxy, Amihud’s liquidity proxy here, does provide useful information when predicting the future recession. We find that the liquidity proxy performs well especially in a short prediction horizon. Besides, the liquidity of small firms is more informative in prediction.