Resiliency and Stock Returns: evidence from the London stock exchange

Abstract

Literature has provided evidence of liquidity as a predictor of expected returns. However, resiliency, as one of its dimensions, has not been extensively studied. The resiliency measure introduced here assumes that liquidity shocks occur during the trading activity and that, in the opening of the following day, the reversals to the new fundamental value is completed. No significant evidence was found for a measure of resiliency that considers the trading day return and the consecutive overnight return, both for equally-weighted and value-weighted portfolios. Also, even considering a sample without micro-cap stocks, illiquidity premium is not significant. (JEL: G10, G11, G12, G14)