Illiquidity Premia in the Equity Options Market

Capturing Equity Risk Premia

Systemic Illiquidity in the Federal Funds Market

This paper shows how the intraday allocation and pricing of overnight loans of federal funds reflect the decentralized interbank market in which these loans are traded. A would-be borrower or lender typically finds a counterparty institution by direct bilateral contact. Once in contact, the two counterparties to a potential trade negotiate terms that reflect their incentives for borrowing or le...

Illiquidity Premia in Asset Returns: An Empirical Analysis of Hedge Funds, Mutual Funds, and U.S. Equity Portfolios∗

We establish a link between illiquidity and positive autocorrelation in asset returns among a sample of hedge funds, mutual funds, and various equity portfolios. For hedge funds, this link can be confirmed by comparing the return autocorrelations of funds with shorter vs. longer redemption-notice periods. We also document significant positive return-autocorrelation in portfolios of securities t...

Filtering Equity Risk Premia from Derivative Prices

This paper considers the measurement of the equity risk premium in financial markets. While there exists a vast amount of research into its behaviour, particularly in US markets, this is largely based on regression based techniques which do not capture well the dynamic and forward looking nature of the risk premium. In this paper the time variation of the unobserved risk premium is modelled by ...

The Illiquidity Puzzle: Theory and Evidence from Private Equity

This paper presents a theory, where managers can use the liquidity of securities as a choice variable to screen for “deep pocket” investors, those that have a low likelihood of facing a liquidity shock. We assume that there is information asymmetry about the quality of the manager between the existing investors and the market. The manager then faces a “lemons” problem when he has to raise funds...