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Can Large Long-Term Investors Capture Illiquidity Premiums?

Frank de Jong and Joost Driessen
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Frank de Jong: Tilburg University
Joost Driessen: Tilburg University

Bankers, Markets & Investors, 2015, issue 134, 34-60

Abstract: In this paper we perform a literature study to assess whether large longterm investors can benefit from liquidity premiums in different asset classes. We both describe the theoretical predictions on liquidity premiums and portfolio choice with illiquidity, as well as empirical evidence on liquidity premiums. We document that expected liquidity premiums in stocks have diminished in recent years and are hard to capture for large investors. In corporate and government bond markets there are more opportunities to exploit liquidity premiums. The evidence on liquidity premiums in alternative investment classes is scarce.

Keywords: Liquidity Premium; Long-term Investors (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2015
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