Abstract
This paper uses Finnish data to investigate the impact of liquidity on the turn-of-the-month (TOM) effect in stock returns. The empirical findings support the hypothesis that higher returns at the TOM than during the rest of the month is associated with increased liquidity, as measured by different measures of trading activity. Moreover, consistent with the hypothesis of increased buying pressure at the TOM, the number of bid quotes increases at the month-end. In addition, there is more in-house trading (internalization) at the TOM. This finding is consistent with the hypothesis that liquidity increases internalized trading, indicating that the TOM effect manifests itself with respect to the trading venue.
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