The Effect of Liquidity on Non-Marketable Securities
11 Pages Posted: 26 Sep 2017 Last revised: 9 Nov 2017
Date Written: November 8, 2017
We generalize the prevailing theoretical models that estimate the discount on securities for lack of marketability, by considering the discrete trading frequency of the securities. The generalization shows that accounting for the illiquidity of securities may significantly reduce their non-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: non-marketability discount, illiquidity, thin-traded securities
JEL Classification: G01
Suggested Citation: Suggested Citation