Negative return volume-weighted illiquidity
factor.formula
Negative return volume-weighted illiquidity factor (ILLIQ_NegRet):
in:
- :
The return of stock i on day t-k. When $r_{i,t-k}$ is negative, the day is included in the calculation; when $r_{i,t-k}$ is non-negative, the day is not included in the calculation.
- :
The trading volume of stock i on day t-k, denominated in RMB or other currencies. This value corresponds to the absolute value of the rate of return and is only used when $r_{i,t-k}$ is negative.
- :
The set of all trading days in month t when the return of stock i is negative. That is, the set of all trading days k with $r_{i,t-k} < 0$.
- :
The total number of trading days in month t on which the return of stock i is negative, that is, the number of elements in the set $D_{neg,t}$.
factor.explanation
This factor measures the illiquidity of a stock when its returns are negative. The core logic is that when a stock falls, trading volume tends to decline and liquidity becomes worse. This factor measures this illiquidity by calculating the ratio of the absolute value of the negative return daily rate of return to trading volume and averaging it monthly. A higher negative return trading volume weighted illiquidity factor value usually means that the stock has poor liquidity when it falls, and investors may need a higher risk premium to compensate for this illiquidity risk. This factor can be used to identify stocks that are more prone to liquidity crises when the market falls, which helps with risk management and portfolio construction. In addition, this factor can reflect market sentiment. During panic selling, trading volume tends to decline, causing the value of this factor to increase.