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Is Liquidity Priced in the Vietnamese Stock Market?

In this paper, we examine whether liquidity is priced in the Vietnamese stock market. We show that stock liquidity is an important factor which should be taken into consideration in pricing stock returns. Explaining power of asset pricing models is improved after the inclusion of liquidity factor. In addition, Fama and French’s (1993) three factors are significant in the Vietnamese stock market, while Carhart’s (1997) momentum factor has very little effect. We also document that among various competing asset pricing models, the liquidity four-factor model which include market excess return, size, value and liquidity factor is the best model in the Vietnamese stock market. The results are robust to different measures of liquidity, as well as to both up and down-market conditions.