Is Liquidity Risk Priced in Partially Segmented Markets?

Ines Chaieb, Vihang R. Errunza and Hugues Langlois
Additional contact information
Vihang R. Errunza: McGill University
Hugues Langlois: HEC Paris

No 18-05, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We develop an asset pricing model to analyze the joint impact of liquidity costs and market segmentation. The freely traded securities command a premium for liquidity level and global market and liquidity risk premiums whereas securities that can only be held by a subset of investors additionally command a local market and liquidity risk premiums. Based on a new methodology, we find that the liquidity level premium dominates the liquidity risk premiums for our sample of 24 emerging markets. Whereas the local liquidity risk premium is empirically small, the global market liquidity risk premium dramatically increases during crises and market corrections.

Keywords: International asset pricing; liquidity risk; transaction cost; emerging markets; market integration. (search for similar items in EconPapers)
JEL-codes: F30 G12 G15 G20 G30 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2018-01, Revised 2018-06
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Is Liquidity Risk Priced in Partially Segmented Markets? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1805

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