Stock market liquidity and asset returns: The case of the NSE 20 share index
This research aims to measure the liquidity levels on a sample of stocks from the Nairobi Securities exchange and also investigate the relationship between returns and liquidity on some of the stocks listed under the NSE 20-share index. The results show that there is a positive relationship between market illiquidity and returns which suggests that the excess returns contain a compensation for illiquidity. The measure of the illiquidity used in the study is the one proposed by Amihud in 2002 which is the average across stocks of the daily ratio of absolute stock return to dollar volume, which is easily obtained from daily stock data for long time series in most stock markets. The model that was used to test for this analysis is the random effects model after running the Hausman test.