Year: 2025
Type: article
Abstract: In this paper, we investigate whether measuring stock liquidity based on an ordered fuzzy numbers representation of a limit order book allows investors to develop a profitable investment strategy. To this end, we examine the data from 259 companies listed on the Warsaw Stock Exchange between January 2014 and December 2021. We apply several methods commonly used in asset pricing studies to obtain baseline results. These were then supplemented with a series of robustness checks. Our strategy which employs a liquidity measure based on ordered fuzzy numbers generates a weekly return of 0.184% (0.199%) for equal- (value-) weighted portfolios, which translates into an annual return of 9.568% (10.348%). This return remains positive after adjusting for risk and considering trading costs and short-sales restrictions. The strategy outperforms the market buy-and-hold strategy, generating a Sharpe ratio several times higher. These results are useful for investors and portfolio managers, as they may assist them in refining their investment strategies.
Source: Computational Economics
Authors: Szymon Stereńczak, Adam Marszałek
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,290
Funder: Ministerstwo Edukacji i Nauki
OpenAlex ID: W4414355582