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Is there an illiquidity premium in frontier markets?

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  • Stereńczak, Szymon
  • Zaremba, Adam
  • Umar, Zaghum

Abstract

We perform a comprehensive examination of the role of stock-level liquidity in the cross-section of frontier market stock returns. Using several popular liquidity measures and a battery of asset pricing tests, we investigate the illiquidity premium in 22 countries for the years 1991–2019. Contrary to typical relationships in developed and emerging markets, we find no evidence of illiquidity premium in frontier equities. Our findings support the hypothesis that for countries not fully integrated with the global economy, the diversification benefits offset the illiquidity, which, in turn, proves less important.

Suggested Citation

  • Stereńczak, Szymon & Zaremba, Adam & Umar, Zaghum, 2020. "Is there an illiquidity premium in frontier markets?," Emerging Markets Review, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:ememar:v:42:y:2020:i:c:s1566014119302481
    DOI: 10.1016/j.ememar.2019.100673
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