סמינר במימון חשבונאות

  Ariel Levy, Ben-Gurion University 

Liquidity affects various capital market outcomes such as expected returns and capital structure.

Prior research has shown that an important determinant of liquidity is volatility, where higher stock return volatility is associated with higher illiquidity.

Using recent developments in the literature, we revisit this relation and decompose total volatility into its jump and diffusive components and argue

that the two volatility components are predicted to have opposite effects on liquidity. This decomposition is motivated by the fact that variation in the

structure of volatility across firms is driven by variation in information environments. Therefore this decomposition gives rise to a new unexplored channel,

independent of information asymmetry and total volatility, through which the information environment can shape liquidity. We find a positive

relation between the jump component of volatility and illiquidity that is independent of any information asymmetry effects. In contrast, we find a negative relation

between diffusive volatility and illiquidity. Finally, we show that these findings translate to differential effects on liquidity risk and premium for the jump and diffusive volatility

components. Our findings have implications for the understanding of asset prices, corporate finance decisions and policy-makers.