Industry- and liquidity-based momentum in Australian equities

Financial Innovation

Table 7 Returns of Liquidity-Momentum Portfolios

Level of Liquidity/Spread Size	Winner	Loser	Winner-Loser
Low liquidity/large spread (L1)	−0.0244	−0.0284	0.0040
Low liquidity/large spread (L1)	−7.95	−8.83	1.63
Medium-low liquidity (L2)	−0.0165	−0.0286	0.0121	***
Medium-low liquidity (L2)	−4.38	−9.31	4.87
Medium liquidity (L3)	0.0005	−0.0104	0.0109	***
Medium liquidity (L3)	0.12	−2.87	4.24
Medium-high liquidity (L4)	0.0176	0.0028	0.0148	***
Medium-high liquidity (L4)	4.92	0.85	7.05
High liquidity/small spread (L5)	0.0202	0.0118	0.0084	***
High liquidity/small spread (L5)	6.51	4.33	4.01
High minus low (L5-L1)			0.0045
High minus low (L5-L1)			1.33
Medium high minus low (L4-L1)			0.0109	***
Medium high minus low (L4-L1)			3.83
Medium high minus medium low (L4-L2)			0.0027
Medium high minus medium low (L4-L2)			1.00

The strategy of J3K3 was used. Sample stocks were first segregated into five levels of bid-ask spread. L1 denotes the largest spread/lowest liquidity, and L5 denotes the smallest spread/highest liquidity. Winner minus loser denotes momentum returns. High minus low (L5-L1) was calculated as the returns of the high liquidity group minus the returns of the low liquidity group. The t-statistics are italicized and measure the significance levels of the returns; ** (***) represents the 5% (1%) significance level. All of the returns were on a monthly basis
Bold entries have significant values