Studying the Relationship between Liquidity Risk and Market Risk with Non-Ordinary Return at Fama—French Three Factor Model at Tehran Stock Exchange

Mirfeiz Fallah Shams,Nader Naghshineh,Hamidreza Kordlouie,Leila Abshari,Mohsen Gholipour

doi:10.5539/ibr.v7n2p53

Mirfeiz Fallah Shams, Nader Naghshineh + Show 3 more

Open Access

https://doi.org/10.5539/ibr.v7n2p53

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Abstract

Each financial market in compliance with broadness and depth has several diverse tools for making investment and investors make investment according to return and asset risk. There are different types of risk and investors due to each of them demand for taking risk. In this research, the effect of information quality is studied by regarding liquidity risk, effect of information quality by regarding risk of market on non-ordinary return at Fama-French three model factor. In this research the stock return influenced by Small Minus Big (SMB) and High Minus Low (HML) that are available at Fama-French three model factor was eliminated. In addition corporate properties and market are considered as market risk variables and liquidity risk. Results show that model is acceptable.

Highlights

One of the models for anticipating expected return of stock is Capital Assets Pricing Model (CAPM)
CAPM is among the first pricing models and the expected return of stock is only influenced by beta market
We study the relation between information quality and market risk

Summary

Introduction

One of the models for anticipating expected return of stock is Capital Assets Pricing Model (CAPM). This model is based on hypothesis of complete competition and equal access of dealers to asymmetrical information. In continuation researchers recognized other effective factors such as: size, ratio of book value to stock market value, liquidity risk, leverage and etc. One of the most important applications of financial markets specially capital market is increasing liquidity effect of financial assets and reducing related risk to liquidity. Liquidity is among great risk resources for investors i.e. market liquidity plays key role on stability of financial systems; since, cash markets are able to attract systematic shocks. Liquidity prevents from imbalance at market; since, risk is better distributed (Acharya & Pedersen, 2005)

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