The effects of non-trading on the illiquidity ratio

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

doi:10.1016/j.jempfin.2015.05.004

The effects of non-trading on the illiquidity ratio

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

Finance

Research output: Contribution to journal › Article › peer-review

6 Citations (Scopus)

316 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 language	English
Pages (from-to)	204-228
Number of pages	24
Journal	Journal of Empirical Finance
Volume	34
Early online date	8 Jul 2015
DOIs	https://doi.org/10.1016/j.jempfin.2015.05.004
Publication status	Published - Dec 2015

Keywords

Illiquidity ratio
Non-trading
Asset pricing

Access to Document

10.1016/j.jempfin.2015.05.004Licence: None: All rights reserved

Chelley_Steeley_Effects_non_trading_Journal_Empirical_Finance_2015
Eligibility for repository: Checked on 08/09/2015
Accepted author manuscript, 631 KBLicence: Creative Commons: Attribution-NonCommercial-NoDerivs (CC BY-NC-ND)

http://www.sciencedirect.com/science/article/pii/S0927539815000602Licence: None: All rights reserved

Cite this

@article{d61bc87aca0e44af8567e78f2c1bba2d,

title = "The effects of non-trading on the illiquidity ratio",

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.",

keywords = "Illiquidity ratio, Non-trading, Asset pricing",

author = "Chelley-steeley, {Patricia L.} and Neophytos Lambertides and Steeley, {James M.}",

year = "2015",

month = dec,

doi = "10.1016/j.jempfin.2015.05.004",

language = "English",

volume = "34",

pages = "204--228",

journal = "Journal of Empirical Finance",

issn = "0927-5398",

publisher = "Elsevier",

}

TY - JOUR

T1 - The effects of non-trading on the illiquidity ratio

AU - Chelley-steeley, Patricia L.

AU - Lambertides, Neophytos

AU - Steeley, James M.

PY - 2015/12

Y1 - 2015/12

N2 - 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.

AB - 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.

KW - Illiquidity ratio

KW - Non-trading

KW - Asset pricing

U2 - 10.1016/j.jempfin.2015.05.004

DO - 10.1016/j.jempfin.2015.05.004

M3 - Article

SN - 0927-5398

VL - 34

SP - 204

EP - 228

JO - Journal of Empirical Finance

JF - Journal of Empirical Finance

ER -

The effects of non-trading on the illiquidity ratio

Abstract

Keywords

Access to Document

Fingerprint

Cite this