Anderson, Richard G and Binner, Jane M and Hagstromer, Bjorn and Nilsson, Birger (2015) Does commonality in illiquidity matter to investors? Discussion Paper. University of Birmingham, Birmingham, UK.
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Abstract
This paper investigates whether investors are compensated for taking on commonality risk in equity portfolios. A large literature documents the existence and the causes of commonality in illiquidity, but the implications for investors are less well understood. In a more than fifty year long sample of NYSE stocks, we find that commonality risk carries a return premium of around 2.6 per cent annually. The commonality risk premium is statistically and economically significant, and substantially higher than what is found in previous studies. It is robust when controlling for illiquidity level effects, different investment horizons, as well as variations in illiquidity measurement and systematic illiquidity estimation.
| Type of Work: | Monograph (Discussion Paper) |
|---|---|
| School/Faculty: | Colleges (2008 onwards) > College of Social Sciences |
| Number of Pages: | 43 |
| Department: | Birmingham Business School |
| Date: | 22 December 2015 |
| Series/Collection Name: | Birmingham Business School Discussion Paper Series |
| Subjects: | H Social Sciences > H Social Sciences (General) H Social Sciences > HF Commerce H Social Sciences > HG Finance |
| Funders: | Jan Wallander and Tom Hedelius Foundation, Tore Browaldh Foundation, Swedish Research Council |
| Copyright Status: | This discussion paper is copyright of the University and the author. In addition, parts of the paper may feature content whose copyright is owned by a third party, but which has been used either by permission or under the Fair Dealing provisions. The intellectual property rights in respect of this work are as defined by the terms of any licence that is attached to the paper. Where no licence is associated with the work, any subsequent use is subject to the terms of The Copyright Designs and Patents Act 1988 (or as modified by any successor legislation). Any reproduction of the whole or part of this paper must be in accordance with the licence or the Act (whichever is applicable) and must be properly acknowledged. For non-commercial research and for private study purposes, copies of the paper may be made/distributed and quotations used with due attribution. Commercial distribution or reproduction in any format is prohibited without the permission of the copyright holders. |
| ID Code: | 2095 |
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