This article empirically examines the liquidity premium predicted by the Amihud and Mendelson (1986) model using NASDAQ data over the 1973-90 period. The results support the model and are much stronger than for the New York Stock Exchange (NYSE), as reported by Nai-Fu Chen and Raymond Kan (1989) and Venkat R. Eleswarapu and Marc R. Reinganum (1993). The author conjectures that the stronger evidence on the NASDAQ is due to the dealers' inside spreads on the NASDAQ being a better proxy for the actual cost of transacting than the quoted spreads on the NYSE, since the NASDAQ dealers do not face competition from limit orders or floor traders. Copyright 1997 by American Finance Association.
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Article provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 52 (1997) Issue (Month): 5 (December) Pages: 2113-27 Download reference. The following formats are available: HTML,
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