The effects of non-trading on the illiquidity ratio

Patricia L. Chelley-steeley, Neophytos Lambertides, James M. Steeley

    Research output: Contribution to journalArticlepeer-review

    6 Citations (Scopus)
    272 Downloads (Pure)

    Abstract

    Using a simulation analysis we show that non-trading can cause an overstatement of the observed illiquidity ratio. Our paper shows how this overstatement can be eliminated with a very simple adjustment to the Amihud illiquidity ratio. We find that the adjustment improves the relationship between the illiquidity ratio and measures of illiquidity calculated from transaction data. Asset pricing tests show that without the adjustment, illiquidity premia estimates can be understated by more than 17% for NYSE securities and by more than 24% for NASDAQ securities.
    Original languageEnglish
    Pages (from-to)204-228
    Number of pages24
    JournalJournal of Empirical Finance
    Volume34
    Early online date8 Jul 2015
    DOIs
    Publication statusPublished - Dec 2015

    Keywords

    • Illiquidity ratio
    • Non-trading
    • Asset pricing

    Fingerprint

    Dive into the research topics of 'The effects of non-trading on the illiquidity ratio'. Together they form a unique fingerprint.

    Cite this