Price Resiliency as a Stock Liquidity and Return Measure

Summary

The document presents price resiliency (RES), a covariance-based measure intended to capture both the price impact of liquidity shocks and how long those shocks persist. It compares returns in the first half-hour of trading with returns over the rest of the day, scaling their covariance by daily return variance. A lower RES is interpreted as weaker price recovery and poorer liquidity.

The cited study summary reports that RES is negatively related to future returns, with return spreads of 33–57 basis points. That association remains significant after excluding small-cap stocks or focusing on large-cap stocks, and after controlling for other liquidity measures and proxies for information asymmetry. These findings support an illiquidity premium that the authors argue conventional measures may miss. The document is a summary rather than a full account of the paper; it does not provide sample details, statistical procedures, or robustness results beyond those described.

Key ideas

• RES uses the covariance of returns across adjacent intraday periods, scaled by daily return variance.
• The measure is designed to reflect both the price impact and persistence of liquidity shocks.
• Lower RES indicates weaker price recovery and relatively poorer liquidity.
• The reported relationship with future returns persists across the described size screens and controls.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.