New evidence on the impact of implicit trading costs on asset prices in the Russian stock market

We perform a comprehensive study of different illiquidity effects in the relatively illiquid Russian stock market. Over the period 2010-2020, we apply cross-sectional and time-series regressions using two low-frequency illiquidity proxies: the Amihud ratio and the invariance-implied ratio. The evidence suggests that implicit trading costs influence only the returns of small-capitalization stocks or low size double-sorted portfolios. The Amihud ratio overestimates the illiquidity premium for small-cap stocks as predicted by the invariance theory. However, we find that the effect is economically and statistically significant only in the time-series.