A1 Journal article (refereed), original research

Pricing of time-varying liquidity risk in Finnish stock market: new evidence


Publication Details
Authors: Ahmed Sheraz, Hirvonen Jani, Hussain Syed Mujahid
Publisher: Taylor & Francis (Routledge): SSH Titles
Publication year: 2019
Language: English
Related Journal or Series Information: European Journal of Finance
Volume number: 25
Issue number: 13
Start page: 1147
End page: 1165
Number of pages: 19
ISSN: 1351-847X
eISSN: 1466-4364
JUFO-Level of this publication: 1
Open Access: Not an Open Access publication

Abstract

Using two recently developed illiquidity measures, we estimate a conditional version of liquidity-adjusted capital asset pricing model (LCAPM), which allows for a time-varying decomposition of the total illiquidity premium into a level component and three risk components. The total estimated annualized illiquidity premium for the Finnish equities during 1997–2015 is 1.13–1.90% depending on the illiquidity measure. Of the three systematic liquidity risk components, risk arising from hedging of wealth shocks is the most important followed by commonality in liquidity risk, whereas flight to liquidity risk is not significantly priced in the Finnish stock market. Our results show that the liquidity risk is time varying, therefore the models estimating the risk-return relationship should address the issue of conditionality.


Research Areas

Last updated on 2020-20-03 at 10:03