How is Liquidity Priced in Global Markets?

68 Pages Posted: 18 Jan 2018 Last revised: 26 Feb 2020

See all articles by Ines Chaieb

Ines Chaieb

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Vihang R. Errunza

McGill University - Desautels Faculty of Management

Hugues Langlois

HEC Paris - Finance Department

Date Written: January 27, 2020

Abstract

We develop a new global asset pricing model to study the joint impact of liquidity and investability constraints for 42 markets. On average, developed and emerging market stocks that can only be held locally are associated with an extra premium of 2.23% and 11.43%, attributed to liquidity level premium (LLP) of 1.06% and 2.39% and unspanned local market risk premium (LMRP) of 1.17% and 9.04%, respectively. While LLP and LMRP are two channels affecting the pricing of segmented stocks, they are differentially related to measures of information quality, sentiment, ownership, short selling, insider trading, and funding and market conditions.

Keywords: International asset pricing, liquidity level, liquidity risk, transaction cost, emerging markets, market integration.

JEL Classification: G12, G15, F30, G20, G30

Suggested Citation

Chaieb, Ines and Errunza, Vihang R. and Langlois, Hugues, How is Liquidity Priced in Global Markets? (January 27, 2020). Swiss Finance Institute Research Paper No. 18-05, Available at SSRN: https://ssrn.com/abstract=3103767 or http://dx.doi.org/10.2139/ssrn.3103767

Ines Chaieb (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+41223798568 (Phone)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Vihang R. Errunza

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
514-398-4056 (Phone)
514-398-3876 (Fax)

Hugues Langlois

HEC Paris - Finance Department ( email )

France

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