The effects of non-trading on the illiquidity ratio

Chelley-Steeley, Patricia L., Lambertides, Neophytos and Steeley, James M. (2015). The effects of non-trading on the illiquidity ratio. Journal of Empirical Finance, 34 , pp. 204-228.

Abstract

Using a simulation analysis we show that non-trading can cause an overstatement of the observed illiquidity ratio. Our paper shows how this overstatement can be eliminated with a very simple adjustment to the Amihud illiquidity ratio. We find that the adjustment improves the relationship between the illiquidity ratio and measures of illiquidity calculated from transaction data. Asset pricing tests show that without the adjustment, illiquidity premia estimates can be understated by more than 17% for NYSE securities and by more than 24% for NASDAQ securities.

Publication DOI: https://doi.org/10.1016/j.jempfin.2015.05.004
Divisions: Aston Business School > Accounting
Aston Business School > Economics, Finance & Entrepreneurship
Aston Business School
Additional Information: © 2015, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Uncontrolled Keywords: asset pricing,illiquidity ratio,non-trading,Economics and Econometrics,Finance
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Related URLs: http://www.scop ... tnerID=8YFLogxK (Scopus URL)
Published Date: 2015
Authors: Chelley-Steeley, Patricia L.
Lambertides, Neophytos
Steeley, James M. ( 0000-0003-0345-5089)

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