Abstract
The importance of liquidity has been acknowledged for a long time now. Liquidity is defined as the ease with which an asset can be converted into cash. A considerable number of studies investigated stock liquidity providing evidence that more illiquid stocks yield higher returns which include an illiquidity premium. According to Amihuda and Mendelson (1986b: 43–48), a required rate of return on the shares (gross, i.e. after taking into account the cost of liquidity) should increase with increasing liquidity, but the marginal increase should decrease with an increasing investment horizon, thus decreasing the likelihood of premature termination of the investment. As a result, investors with different investment horizons may require different rates of return per unit of time from the same shares (Huang 2003: 104–129). Investor horizon is the time period for which an investor holds a stock. Most of the research conducted on investment horizon links it to liquidity, supporting the thesis that it is negatively related to liquidity. “Transaction costs and the holding periods for common stocks” written by Atkins and Dyl (1997: 309–325) is one of the first papers to investigate the effects of liquidity on holding period. The aim of this study is to show the dependencies occurring between the phenomena of investment horizon and asymmetric information and the liquidity of shares of a company.
Highlights
The long-term success of any company depends on good strategy, good governance, high-value assets, the existence of demand for its products and services, and access to investment capital
The aim of this study is to show the dependencies occurring between the phenomena of investment horizon and asymmetric information and the liquidity of shares of a company
Amihud and Mendelson (1986b: 43–48) show in their study that the required rate of return on shares is expected to increase with increasing liquidity, but the marginal increase should decrease with increasing investment horizon, decreasing the likelihood of premature termination of the investment
Summary
The long-term success of any company depends on good strategy, good governance, high-value assets, the existence of demand for its products and services, and access to investment capital. The responsibility of the company‟s management is understood as the way in which those responsible for the daily management of the company are held accountable for the fulfilment of their duties to shareholders and other providers of the company‟s operating funds. Another important issue is information policy [139]. Despite the availability of Internet services, television and the developments in mobility, there remains a problem with shortage of information and/or poor transfer of information. Stock exchanges lay down strict disclosure obligations, according to which companies must provide the market with a lot of current information on their activities. But asymmetry always remains due to the fact that people working in the company will know about important events earlier than the market, which is why misuse of such „inside‟ information is expressly forbidden, punished and prosecuted, this is called insider trading
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