Critical Finance Review > Vol 8 > Issue 1-2

Illiquidity and Stock Returns: A Revisit

Yakov Amihud, New York University, USA, yamihud@stern.nyu.edu
 
Suggested Citation
Yakov Amihud (2019), "Illiquidity and Stock Returns: A Revisit", Critical Finance Review: Vol. 8: No. 1-2, pp 203-221. http://dx.doi.org/10.1561/104.00000073

Publication Date: 17 Dec 2019
© 2019 Yakov Amihud
 
Subjects
 
Keywords
JEl codes: G10G12
Liquidity and asset pricingIlliquidity measureLiquidity shocksLiquidity premium
 

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In this article:
1. Introduction 
2. Construction of the Illiquid-Minus-Liquid Factor 
3. The Risk-Adjusted Premium on IML 
4. The Effects of the Time-Series of Market Illiquidity Shocks on IML 
5. Concluding Remarks 
References 

Abstract

This paper explains and extends my 2002 paper. It presents a return factor of illiquid-minus-liquid stocks (IML), which provides a time-series of the illiquidity premium. The risk-adjusted expected return on IML is positive and significant in the last 63 years and while it is lower in the period that follows my 2002 paper it remains positive and significant. IML also has the predicted response to market illiquidity shocks. In particular, the relation between illiquidity shocks and stock returns is more negative for illiquid stocks even after my study period.

DOI:10.1561/104.00000073