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How Much Can Marketability Affect Security Values?

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Author Info
 Longstaff, Francis A
Abstract

How marketability affects security prices is one of the most important issues in finance. The authors derive a simple analytical upper bound on the value of marketability using option-pricing theory. They show that discounts for lack of marketability can potentially be large even when the illiquidity period is very short. This analysis also provides a benchmark for assessing the potential costs of exchange rules and regulatory requirements restricting the ability of investors to trade when desired. Furthermore, these results provide new insights into the relation between discounts for lack of marketability and the length of the marketability restriction. Copyright 1995 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 50 (1995)
Issue (Month): 5 (December)
Pages: 1767-74
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Handle: RePEc:bla:jfinan:v:50:y:1995:i:5:p:1767-74

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  1. Gann, Philipp, 2009. "Liquidität, Risikoeinstellung des Kapitalmarktes und Konjunkturerwartung als Preisdeterminanten von Collateralized Debt Obligations (CDOs) - Eine simulationsgestützte Analyse," Discussion Papers in Business Administration 10582, University of Munich, Munich School of Management. [Downloadable!]
  2. Robert DeYoung & William Hunter & Gregory Udell, 2004. "The Past, Present, and Probable Future for Community Banks," Journal of Financial Services Research, Springer, vol. 25(2), pages 85-133, April. [Downloadable!] (restricted)
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  3. Zulauf, Carl R. & Zhou, Haijiang & Roberts, Matthew C., 2005. "Updating the Estimation of the Supply of Storage Model," 2005 Annual meeting, July 24-27, Providence, RI 19122, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  4. Dimitri Vayanos, 2004. "Flight to Quality, Flight to Liquidity, and the Pricing of Risk," NBER Working Papers 10327, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Francis Longstaff, 2001. "The Flight-to-Liquidity Premium in U.S. Treasury Bond Prices," University of California at Los Angeles, Anderson Graduate School of Management 1004, Anderson Graduate School of Management, UCLA. [Downloadable!]
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