The Relationship Between Liquidity and Return in Turkish Stock Market

In this study, we examine the effect of liquidity on return in the stock market of Turkey using data of 265 companies for the period 2/01/2002 through 2/02/2017. We use Corwin-Schultz bid-ask spread estimator, high – low ratio and Amihud illiquidity measure as liquidity variables. We run panel data least squares on a simple CAPM model which has a liquidity variable and where the risk-free interest rate is zero. We find that illiquidity has negative effect on both daily and monthly returns. We also examine this effect in four size groups. We find that negative effect persists in subsamples except for Amihud illiquidity measure which has non-significant and positive coefficients for larger companies. According to our findings, negative effect is stronger for smaller companies. Our results are in contrast with many studies which support liquidity premium in developed markets. This suggests further analysis on emerging markets like Turkey