Illiquidity and stock returns: the moderating role of investors' holding period in Central and Eastern European markets

Purpose The positive illiquidity–return relationship (so-called liquidity premium) is a well-established pattern in international developed stock markets. magnitude of premium should increase with market illiquidity. Existing studies, however, do not confirm this conjecture regard to frontier This may result from applying different approaches the investors' holding period. paper aims identify role period shaping emerging and markets, which are arguably considered illiquid. Design/methodology/approach authors utilise data on stocks listed fourteen exchanges Central Eastern Europe. regress returns measures variously transformed reflect clientele effect liquidity–return relationship. Findings show that moderates CEE markets also these statistically economically relevant. Practical implications findings be great interest investors, companies regulators. Investors take into account when making decisions; regulators employ liquidity-enhancing actions decrease companies' cost capital expand firms' investment opportunities, will improve growth perspectives for entire economy. Originality/value These enrich understanding plays To best knowledge, first study investigates