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The effect of liquidity on non-marketable securities

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  • (Meni) Abudy, Menachem
  • Binsky, Hadar
  • Raviv, Alon

Abstract

We generalize the prevailing theoretical models that estimate the discount on securities for lack of marketability, by considering the discrete trading frequency of the securities. The generalization shows that accounting for the illiquidity of securities may significantly reduce their non-marketability discount. Further, the method reconciles the approaches of Longstaff (1995) and Finnerty (2012a), which are special solutions of our method.

Suggested Citation

  • (Meni) Abudy, Menachem & Binsky, Hadar & Raviv, Alon, 2018. "The effect of liquidity on non-marketable securities," Finance Research Letters, Elsevier, vol. 26(C), pages 139-144.
    • Handle: RePEc:eee:finlet:v:26:y:2018:i:c:p:139-144
    DOI: 10.1016/j.frl.2017.12.017
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    References listed on IDEAS

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    1. Allen, Linda & Gottesman, Aron A. & Peng, Lin, 2012. "The impact of joint participation on liquidity in equity and syndicated bank loan markets," Journal of Financial Intermediation, Elsevier, vol. 21(1), pages 50-78.
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    4. Abudy, Menachem & Benninga, Simon, 2013. "Non-marketability and the value of employee stock options," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5500-5510.
    5. Rui Albuquerque & Enrique Schroth, 2015. "The Value of Control and the Costs of Illiquidity: Erratum," Journal of Finance, American Finance Association, vol. 70(6), pages 2899-2900, December.
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    8. Li, Wanli & Cao, Ting & Feng, Zhaozhen, 2016. "Heterogeneous venture capital, M&A activity, and market response," Emerging Markets Review, Elsevier, vol. 29(C), pages 168-199.
    9. Abudy, Menachem Meni & Raviv, Alon, 2016. "How much can illiquidity affect corporate debt yield spread?," Journal of Financial Stability, Elsevier, vol. 25(C), pages 58-69.
    10. Rui Albuquerque & Enrique Schroth, 2015. "The Value of Control and the Costs of Illiquidity," Journal of Finance, American Finance Association, vol. 70(4), pages 1405-1455, August.
    11. Jacoby, Gady & Zheng, Steven X., 2010. "Ownership dispersion and market liquidity," International Review of Financial Analysis, Elsevier, vol. 19(2), pages 81-88, March.
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    Cited by:

    1. Radosław Pastusiak & Jakub Keller & Michał Radke, 2020. "Marketability Discount in Various Economic Environments. Comparison of Developed and Emerging Markets on the Example of the USA and Poland," JRFM, MDPI, vol. 13(6), pages 1-15, June.

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    More about this item

    Keywords

    Non-marketability discount; Illiquidity; Thin-traded securities;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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