This study investigates the impact of liquidity on stock price reactions surrounding interim earnings announcements for small-, mid-, and large-cap stocks listed on Nasdaq Stockholm. Building on the Efficient Market Hypothesis and market microstructure theory, the research explores whether liquidity, measured by the turnover ratio, influences the magnitude and volatility of cumulative abnormal returns (CAR).

Using a dataset covering 2017–2018 and applying event study methodology combined with panel data regression analysis, the study finds that interim report announcements generate statistically significant abnormal returns. Furthermore, liquidity is shown to have a positive and significant relationship with the magnitude of stock price reactions. These effects are more pronounced for small- and mid-cap stocks compared to large-caps, highlighting liquidity constraints as an amplifying factor for volatility and delayed price adjustments.

The study contributes to the existing literature by providing new empirical evidence from the Swedish stock market, a relatively under-researched context, and by illustrating the differentiated impact of liquidity across firm sizes. Practical implications include the importance of considering liquidity in event-driven trading strategies, portfolio risk management, and regulatory initiatives aimed at improving market efficiency.

Future research is encouraged to extend the analysis to different timeframes, alternative liquidity measures, and cross-country comparisons to further advance understanding of liquidity’s role in financial market behavior.

Disclaimer: This abstract was generated with the assistance of artificial intelligence.