The Pricing of the Illiquidity Factor's Systematic Risk

@inproceedings{Amihud2014ThePO,
  title={The Pricing of the Illiquidity Factor's Systematic Risk},
  author={Yakov Amihud},
  year={2014}
}
  • Yakov Amihud
  • Published 2014
  • Economics
  • This paper presents a liquidity factor IML, the return on illiquid-minus-liquid stock portfolios. The IML, adjusted for the common risk factors, measures the illiquidity premium whose annual alpha is about 4% over the period 1950-2012. I then test whether the systematic risk (β) of IML is priced in a multi-factor CAPM. The model allows for a conditional β of IML that rises with observable funding illiquidity and adverse market conditions. The conditional IML β is positively and significantly… CONTINUE READING

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