Marketability Discount of Thin-Traded Securities

25 Pages Posted: 16 Aug 2016 Last revised: 30 Jan 2017

Menachem (Meni) Abudy

Bar-Ilan University - Graduate School of Business Administration

Hadar Binsky

Tel Aviv University

Alon Raviv

Bar-Ilan University - Graduate School of Business Administration

Date Written: January 23, 2017

Abstract

Theoretical models that estimate marketability discount assume that securities are continuously traded in unlimited quantities. In practice, many securities exhibit low trading frequency. We generalize the theoretical models using a method in which the frequency and the limit on the traded quantity are considered, and estimate its impact on marketability discount. We show that accounting for the illiquidity of a security may significantly reduce its marketability discount. Further, we show that our method reconciles the approaches to estimating marketability discount of Longstaff (1995) and Finnerty (2012a), by showing that the two are corner and special solutions of our generalized method.

Keywords: Marketability, liquidity, thin-traded security

JEL Classification: G01, G12, G13

Suggested Citation

Abudy, Menachem (Meni) and Binsky, Hadar and Raviv, Alon, Marketability Discount of Thin-Traded Securities (January 23, 2017). Available at SSRN: https://ssrn.com/abstract=2823584

Menachem (Meni) Abudy (Contact Author)

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

Hadar Binsky

Tel Aviv University ( email )

Alon Raviv

Bar-Ilan University - Graduate School of Business Administration ( email )

The Graduate School of Business Administration
Ana and Max Web st
Ramat Gan
Israel

Paper statistics

Downloads
58
Rank
306,164
Abstract Views
276