Abstract
Positive illiquidity premium is documented to be linked with level and risk of illiquidity effect across global markets. Our study shows that this evidence is subject to variation from one measure of illiquidity to another with one potential implication. That the magnitude of illiquidity premium across global markets is less in previous studies, mainly because only one measure of illiquidity is implied. To elaborate this point the test case of Australian stock market is taken and likely strategy to determine the maximum illiquidity premium across the international markets is proposed. Further it is shown that stock based asset pricing tests are more appropriate to segregate level and risk of illiquidity effect.
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