The Value of Tradeability

Chesney, Marc; Kempf, Alexander

doi:10.2139/ssrn.1931611

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The Value of Tradeability

Swiss Finance Institute Research Paper No. 11-37

46 Pages Posted: 21 Sep 2011

See all articles by Marc Chesney

Marc Chesney

University of Zurich - Department of Banking and Finance

Alexander Kempf

University of Cologne - Department of Finance & Centre for Financial Research (CFR)

Date Written: July 11, 2011

Abstract

This paper determines the value of asset tradeability in an option pricing framework. In our model, tradeability is valuable since it allows investors to exploit temporary mis-pricings of stocks. The model delivers several novel insights on the value of tradeability: The value of tradeability is the larger, the higher the pricing efficiency of the market is. Uncertainty increases the value of tradeablity, no matter whether the uncertainty results from noise trading or from new information about the fundamental value of the stock. The value of tradeability is the larger, the longer the illiquid stock cannot be traded and the more trading dates the liquid stock offers.

Keywords: Tradeability, Liquidity, Option Pricing

JEL Classification: G13

Suggested Citation: Suggested Citation

Chesney, Marc and Kempf, Alexander, The Value of Tradeability (July 11, 2011). Swiss Finance Institute Research Paper No. 11-37, Available at SSRN: https://ssrn.com/abstract=1931611 or http://dx.doi.org/10.2139/ssrn.1931611