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The illiquidity premium: International evidence

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  • Amihud, Yakov
  • Hameed, Allaudeen
  • Kang, Wenjin
  • Zhang, Huiping

Abstract

We examine the illiquidity premium in stock markets across 45 countries and present two findings. First, the average illiquidity return premium across countries is positive and significant, after controlling for other pricing factors. The premium is measured by monthly return series on illiquid-minus-liquid stocks or by the coefficient of stock illiquidity estimated from cross section Fama-MacBeth regressions. Second, a commonality exists across countries in the illiquidity return premium, controlling for common global return factors and variation in global illiquidity. This commonality is different from commonality in illiquidity itself and is greater in globally integrated markets.

Suggested Citation

  • Amihud, Yakov & Hameed, Allaudeen & Kang, Wenjin & Zhang, Huiping, 2015. "The illiquidity premium: International evidence," Journal of Financial Economics, Elsevier, vol. 117(2), pages 350-368.
  • Handle: RePEc:eee:jfinec:v:117:y:2015:i:2:p:350-368
    DOI: 10.1016/j.jfineco.2015.04.005
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    More about this item

    Keywords

    G12; G15; F37; Illiquidity premium; International markets; Commonality in illiquidity premium;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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