Abstract
This study is, to the best of the authors’ knowledge, the first attempt to comprehensively examine and explain the January effect in the illiquidity premium. Using data from 23 major international stock markets for the years 1991–2019, we demonstrate a strong and pervasive calendar seasonality in liquidity pricing across different geographical regions. The entire illiquidity premium is realized almost solely in January. Further, we show that this seasonal pattern is driven by a parallel phenomenon in small firms; exposure to the size factor thoroughly explains the January seasonality in the illiquidity premium.
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