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The Value of Tradeability

Author

Listed:
  • Marc CHESNEY

    (University of Zurich and Swiss Finance Institute)

  • Alexander KEMPF

    (University of Cologne)

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 tradeablity, 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.

Suggested Citation

  • Marc CHESNEY & Alexander KEMPF, 2011. "The Value of Tradeability," Swiss Finance Institute Research Paper Series 11-37, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp1137
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    More about this item

    Keywords

    Tradeability; Liquidity; Option Pricing;
    All these keywords.

    JEL classification:

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

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