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The value of tradeability

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  • Marc Chesney
  • Alexander Kempf

Abstract

This paper determines the value of asset tradeability in an option pricing framework. In our model, tradeability is valuable since it allows investors to exploit temporary mispricings of stocks. The model delivers several novel insights on the value of tradeability: The value of tradeability is the larger, the higher the pricing efficiency of the market is. Uncertainty increases the value of tradeability, no matter whether the uncertainty results from noise trading or from new information about the fundamental value of the stock. The value of tradeability is the larger, the longer the illiquid stock cannot be traded and the more trading dates the liquid stock offers. Copyright Springer Science+Business Media, LLC 2012

Suggested Citation

  • Marc Chesney & Alexander Kempf, 2012. "The value of tradeability," Review of Derivatives Research, Springer, vol. 15(3), pages 193-216, October.
    • Handle: RePEc:kap:revdev:v:15:y:2012:i:3:p:193-216
    DOI: 10.1007/s11147-012-9074-0
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    Cited by:

    1. Buchner, Axel, 2016. "How much can lack of marketability affect private equity fund values?," Review of Financial Economics, Elsevier, vol. 28(C), pages 35-45.
    2. Ludovic Mathys, 2019. "Valuing Tradeability in Exponential L\'evy Models," Papers 1912.00469, arXiv.org, revised Feb 2020.
    3. Axel Buchner, 2016. "How much can lack of marketability affect private equity fund values?," Review of Financial Economics, John Wiley & Sons, vol. 28(1), pages 35-45, January.
    4. Stereńczak, Szymon, 2020. "Stock liquidity premium with stochastic price impact and exogenous trading strategy," International Review of Financial Analysis, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Tradeability; Liquidity; Option pricing; G13;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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