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Illusory Nature of Pricing of Illiquidity Effect: The Test Case of Australian Stock Market

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  • Hilal Anwar Butt, Ihsan Ullah Badshah, Muhammad Tahir Suleman

    (Institute of Business Administration Karachi)

Abstract

Positive illiquidity premium is documented to be linked with the illiquidity effect across global markets. This evidence is generally suggested through some asset pricing model, such as Acharya and Pedersen (2005) or others. Our study shows that the success of any such model in terms of magnitude of predicted risk premium is linked with a measure of illiquidity used in the study. The main implication of this evidence is that the variety of illiquidity related risk premiums can be reported for the same market, or for the number of markets. To elaborate this point, the test case of Australian stock market is taken and likely strategy to determine the maximum illiquidity premium is proposed.

Suggested Citation

  • Hilal Anwar Butt, Ihsan Ullah Badshah, Muhammad Tahir Suleman, 2017. "Illusory Nature of Pricing of Illiquidity Effect: The Test Case of Australian Stock Market," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 2(2), pages 115-129, October.
    • Handle: RePEc:gei:jnlfer:v:2:y:2017:i:2:p:115-129
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    References listed on IDEAS

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    Cited by:

    1. Stereńczak, Szymon & Zaremba, Adam & Umar, Zaghum, 2020. "Is there an illiquidity premium in frontier markets?," Emerging Markets Review, Elsevier, vol. 42(C).

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