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Liquidity and Asset prices: An Empirical Investigation of the Nordic Stock Markets
Author(s) -
Butt Hilal Anwar,
Virk Nader Shahzad
Publication year - 2015
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12041
Subject(s) - market liquidity , capital asset pricing model , liquidity risk , economics , liquidity premium , financial economics , stock (firearms) , empirical evidence , asset (computer security) , risk premium , monetary economics , funding liquidity , econometrics , mechanical engineering , philosophy , epistemology , computer science , engineering , computer security
Abstract This paper presents a simplified single period asset‐pricing model adjusted for liquidity and tests it for the Nordic markets. The detailed empirical evidence is presented from Finnish test case. Empirical testing of small yet developed markets is motivated by the increased relevance of the illiquidity effect for illiquid assets/markets. The main evidence reports liquidity risk makes sufficiently larger part of predicted factor risk premium than the market risk, contrary to comparable US evidence. This highlights the ability of liquidity related model betas in capturing the time variation in expected returns across illiquid (Nordic) markets than market beta.