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The Pricing Discount for Limited Liquidity: Evidence from the SWX Swiss Exchange and the NASDAQ

42 Pages Posted: 18 Sep 2003  

Claudio F. Loderer

University of Berne - Institute for Financial Management; European Corporate Governance Institute (ECGI)

Lukas Roth

University of Alberta - Department of Finance and Statistical Analysis

Date Written: September 6, 2003

Abstract

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-to-date information about limited liquidity discounts. We analyze data from the SWX 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%.

Keywords: Liquidity, Asset pricing, Bid-ask spread

JEL Classification: G12, G31

Suggested Citation

Loderer, Claudio F. and Roth, Lukas, The Pricing Discount for Limited Liquidity: Evidence from the SWX Swiss Exchange and the NASDAQ (September 6, 2003). Available at SSRN: https://ssrn.com/abstract=288965 or http://dx.doi.org/10.2139/ssrn.288965

Claudio F. Loderer (Contact Author)

University of Berne - Institute for Financial Management ( email )

Engehaldenstrasse 4
Bern, CH-3012
Switzerland
+41 31 631 37 75 (Phone)
+41 31 631 84 21 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Lukas Roth

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32E Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-4431 (Phone)
780-492-3325 (Fax)

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