The Value of Tradeability

Marc Chesney and Alexander Kempf
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Marc Chesney: University of Zurich and Swiss Finance Institute
Alexander Kempf: University of Cologne

No 11-37, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper determines the value of asset tradeability in an option pricing framework. In our model, tradeability is valuable since it allows investors to exploit temporary mispricings of stocks. The model delivers several novel insights on the value of tradeability: The value of tradeability is the larger, the higher the pricing efficiency of the market is. Uncertainty increases the value of tradeablity, no matter whether the uncertainty results from noise trading or from new information about the fundamental value of the stock. The value of tradeability is the larger, the longer the illiquid stock cannot be traded and the more trading dates the liquid stock offers.

Keywords: Tradeability; Liquidity; Option Pricing (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2011-07
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1137

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