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Illiquidity Premium in the MILA

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  • Darcy Fuenzalida
  • Luis Berggrun
  • Samuel Mongrut

Abstract

This article analyzes the illiquidity premium in the MILA. Using seven proxies for illiquidity, we find a positive and significant illiquidity premium for our sample. A microstructure bias-free portfolio weighting based on past returns is critical in our finding of an illiquidity premium, which is robust to several methodological changes in our portfolio simulations. We also document that the premium is present only in small and high book-to-market stocks. Nonetheless, when we control for size and distress effects, the difference and significance in risk-adjusted returns between portfolios of high and low illiquidity stocks remains.

Suggested Citation

  • Darcy Fuenzalida & Luis Berggrun & Samuel Mongrut, 2017. "Illiquidity Premium in the MILA," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(5), pages 1015-1029, May.
    • Handle: RePEc:mes:emfitr:v:53:y:2017:i:5:p:1015-1029
    DOI: 10.1080/1540496X.2016.1220858
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    Cited by:

    1. Berggrun, Luis & Cardona, Emilio & Lizarzaburu, Edmundo, 2024. "Evaluating asset pricing anomalies: Evidence from Latin America," Research in International Business and Finance, Elsevier, vol. 70(PB).
    2. Butt, Hilal Anwar & Demirer, Riza & Sadaqat, Mohsin & Suleman, Muhammad Tahir, 2022. "Do emerging stock markets offer an illiquidity premium for local or global investors?," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 502-515.

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