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Liquidity measures, liquidity drivers and expected returns on an early call auction market

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Burhop,  Carsten
Max Planck Institute for Research on Collective Goods, Max Planck Society;

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Citation

Burhop, C., & Gelman, S. (2011). Liquidity measures, liquidity drivers and expected returns on an early call auction market.


Cite as: http://hdl.handle.net/11858/00-001M-0000-0028-6CFF-1
Abstract
We analyze the impact of illiquidity on asset pricing on a rather stable stock market in a volatile economic environment, the Berlin Stock Exchange from 1892 to 1913. We use a Lesmond et al. (1999) measure of transaction costs to proxy illiquidity. Our results show that transaction costs were low and comparable to today’s costs. However, the illiquidity risk premium was considerably higher. Applying a conditional liquidity-adjusted capital asset pricing model, we show that recessions and, in particular, banking crises cause the higher illiquidity risk premia.