Chelley-Steeley, P, Lambertides, N and Steeley, JM (2015) The effects of non-trading on the illiquidity ratio. Journal of Empirical Finance, 34. 204 -228. ISSN 0927-5398

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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.

Item Type: Article
Additional Information: This is the accepted author manuscript (AAM). The final published version (version of record) is available online via Elsevier at http://dx.doi.org/10.1016/j.jempfin.2015.05.004 Please refer to any applicable terms of use of the publisher.
Uncontrolled Keywords: Illiquidity Ratio, Non-Trading, Risk Premia
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Divisions: Faculty of Humanities and Social Sciences > Keele Management School
Depositing User: Symplectic
Date Deposited: 18 Mar 2016 10:19
Last Modified: 25 Jun 2018 08:43
URI: http://eprints.keele.ac.uk/id/eprint/1580

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