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Is Liquidity Risk Priced in Partially Segmented Markets?

Author

Listed:
  • Ines Chaieb
  • Vihang Errunza
  • Hugues Langlois

    (HEC Paris - Ecole des Hautes Etudes Commerciales)

Abstract

We develop an asset pricing model to analyze the joint impact of liquidity costs and market segmentation. The freely traded securities command a premium for liquidity level and global market and liquidity risk premiums whereas securities that can only be held by a subset of investors additionally command a local market and liquidity risk premiums. Based on a new methodology, we find that the liquidity level premium dominates the liquidity risk premiums for our sample of 24 emerging markets. Whereas the local liquidity risk premium is empirically small, the global market liquidity risk premium dramatically increases during crises and market corrections.

Suggested Citation

  • Ines Chaieb & Vihang Errunza & Hugues Langlois, 2018. "Is Liquidity Risk Priced in Partially Segmented Markets?," Working Papers hal-01937114, HAL.
    • Handle: RePEc:hal:wpaper:hal-01937114
    DOI: 10.2139/ssrn.3103767
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    Cited by:

    1. Luo, Di, 2022. "ESG, liquidity, and stock returns," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    2. Cynthia M. Gong & Di Luo & Huainan Zhao, 2021. "Liquidity risk and the beta premium," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(4), pages 789-814, December.

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