—this paper examines liquidity as measured by both
price impact and bid-ask spread. Liquidity determinants of
large trades "block trades" in the Saudi market are examined
using 124 companies that comprise all listed firms in the
market. We use high frequency intraday data for the period
2005-2008 to provide out of sample evidence related to
liquidity and information asymmetry. Bid-ask spread as a
measure of liquidity was decomposed, using the model of
Huang and Stoll (1997) to infer the information asymmetry
patterns in the market. We use quoted spread (QBAS), relative
spread (RBAS) and effective spread (EBAS) as three proxies
for liquidity in the market. We find a price impact asymmetry
between buyer-initiated block trades and seller-initiated block
trades. Seller of block trades in the Saudi market pay higher
liquidity premium than buyers of block trades. Our results
provide new evidence from an order-driven market that has
low degree of institutional investors and higher concentration
—Liquidity, price impact, Bid-ask spread
block trades, Saudi stock market, information asymmetry.
Ahmed Alzahrani is with the Assistant Professor of Finance.Institute
of Public Administration. P. O Box. 205 Riyadh (email:
Zahraniaa@ipa.edu.sa; Tel: +966 55 718 2842).
Cite:Ahmed Alzahrani, "Liquidity Cost Determinants in the Saudi Market," International Journal of Trade, Economics and Finance vol.2, no.3, pp. 185-193, 2011.