Market microstructure and asset pricing: on the compensation for illiquidity in stock returns
Article Abstract:
Models of price information in securities markets indicate that uninformed investors incur substantial illiquidity costs created by privately informed investors. This implies that relatively illiquid securities should have higher required rates of return. The link between stock returns and illiquidity is investigated using a wide variety of empirical methodologies from asset pricing and market microstructure research. The two variables are found to be significantly related after the impact of the stock price level is taken into account, and after the Fama and French (1193) factors are used to adjust for risk.
Publication Name: Journal of Financial Economics
Subject: Economics
ISSN: 0304-405X
Year: 1996
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Investment analysis and price formation in securities markets
Article Abstract:
The association between the number of analysts evaluating a stock and the adverse selection costs of transacting was studied. The concept of adverse selection costs is derived from a model developed by Admati and Pfleiderer which posits that investors with greater market information can inflict substantial liquidity costs on other investors. Intraday data on 1,500 common stocks reported by the Institute for the Study of Security Markets in 1988 were analyzed. It was concluded that a greater number of investment analysts will result in a decline in the adverse selection costs of transacting.
Publication Name: Journal of Financial Economics
Subject: Economics
ISSN: 0304-405X
Year: 1995
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The illiquidity puzzle: theory and evidence from private equity
Article Abstract:
Managers can utilize the degree of illiquidity of securities for selecting a financially strong investor. The importance of a financially strong investor is realized when the firm has to go to the market for raising new capital.
Publication Name: Journal of Financial Economics
Subject: Economics
ISSN: 0304-405X
Year: 2004
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