The pricing discount for limited liquidity: Evidence from SWX Swiss Exchange and the Nasdaq
نویسندگان
چکیده
We investigate the pricing discount for limited liquidity. Unlike previous studies that have examined the relation between historical returns and liquidity, ours looks directly at current stock prices. This approach requires less data and yields up-todate information about limited liquidity discounts. We analyze data from the Swiss exchange and the Nasdaq during 1995–2001, and find a statistically and economically significant price-liquidity relation in both markets. We test the robustness of that relation with a procedure that does not rely on specific distributional assumptions. Our findings are unaffected. Accordingly, the discount suffered by the least liquid securities is about 30%.
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