Sources of liquidity premium: Risk or mispricing?

Pin Huang Chou; Kuan Cheng Ko; K. C.John Wei

doi:10.1142/9789811269943_0065

Sources of liquidity premium: Risk or mispricing?

Pin Huang Chou
, Kuan Cheng Ko
, K. C.John Wei

The Hong Kong Polytechnic University

Research output: Chapter in book / Conference proceeding › Chapter in an edited book (as author) › Academic research › peer-review

Abstract

We study three widely used liquidity measures and find that they all carry significant premiums beyond the size, book-to-market, and momentum effects. Although liquidity as a risk factor bears a significant return premium, it is better characterized by a characteristicbased model. Further analysis shows that (1) although the premium persists for up to five years following formation, it diminishes over time and becomes insignificant in the post- 1960 period; (2) the premium is larger for stocks with higher idiosyncratic risk. Thus, the empirical results provide some evidence that supports the mispricing argument.

Original language	English
Title of host publication	Handbook Of Investment Analysis, Portfolio Management, And Financial Derivatives (In 4 Volumes)
Publisher	World Scientific Publishing Co.
Pages	2051-2088
Number of pages	38
Volume	3-4
ISBN (Electronic)	9789811269943
ISBN (Print)	9789811269936
DOIs	https://doi.org/10.1142/9789811269943_0065
Publication status	Published - 8 Apr 2024

Keywords

Characteristic-based model
Factor model
Liquidity
Mispricing
Risk

ASJC Scopus subject areas

General Economics,Econometrics and Finance
General Business,Management and Accounting

More information

10.1142/9789811269943_0065

Cite this

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Sources of liquidity premium: Risk or mispricing? / Chou, Pin Huang; Ko, Kuan Cheng; Wei, K. C.John.
Handbook Of Investment Analysis, Portfolio Management, And Financial Derivatives (In 4 Volumes). Vol. 3-4 World Scientific Publishing Co., 2024. p. 2051-2088.

Research output: Chapter in book / Conference proceeding › Chapter in an edited book (as author) › Academic research › peer-review

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Sources of liquidity premium: Risk or mispricing?

Abstract

Keywords

ASJC Scopus subject areas

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