Download this Paper Open PDF in Browser

An Analysis of Temporal Relation between Monetary Conditions and Illiquidity Premium in Indonesia

42 Pages Posted: 9 Sep 2012  

Zaäfri A. Husodo

Universitas Indonesia, Graduate School of Management

Rama Raditya

affiliation not provided to SSRN

Date Written: August 20, 2012

Abstract

The objective of this research is to find evidence of a systematic relation between monetary conditions and temporal variation in the price of liquidity in Indonesia. Specifically, following an expansive monetary policy shift, funding conditions improve and market-wide liquidity increases, which is especially beneficial for illiquid securities. The improved liquidity and funding conditions reduce the returns required for holding illiquid securities. Consequently, illiquid stocks experience relatively large price increases when monetary conditions become expansive; hence, the measured return spread between illiquid and liquid stocks expands substantially. Overall, the evidence supports the claim that the price of asset liquidity is dependent on monetary conditions.

Keywords: Illiquidity, Liquidity, Asset pricing, Funding conditions, Monetary conditions

JEL Classification: G12, E52

Suggested Citation

Husodo, Zaäfri A. and Raditya, Rama, An Analysis of Temporal Relation between Monetary Conditions and Illiquidity Premium in Indonesia (August 20, 2012). Universitas Indonesia, Graduate School of Management Research Paper No. 13-11. Available at SSRN: https://ssrn.com/abstract=2143914 or http://dx.doi.org/10.2139/ssrn.2143914

Zaäfri A. Husodo (Contact Author)

Universitas Indonesia, Graduate School of Management ( email )

Depok, West Java 16424
Indonesia

Rama Raditya

affiliation not provided to SSRN ( email )

Paper statistics

Downloads
52
Rank
327,351
Abstract Views
533