We are grateful to the anonymous referee and John Doukas, the editor of the journal, for their comments on earlier version of this paper. The authors also wish to thank conference participants at the Hanken School of Economics, the IFABS, 2012 conference, the SFA, 2012 Annual Meetings and MFS conference, 2013. Discussions with Johan Knif, Kenneth Högholm and Peter Nyberg are gratefully acknowledged. We are also grateful to Waleed Ahmad for help with writing codes for data construction. The financial support of Hanken Foundation and Wallenberg CEFIR is greatly acknowledged. Correspondence: Hilal Anwar Butt.
Liquidity and Asset prices: An Empirical Investigation of the Nordic Stock Markets
Article first published online: 2 MAR 2014
© 2014 Blackwell Publishing Ltd
European Financial Management
How to Cite
Butt, H. A. and Virk, N. S. (2014), Liquidity and Asset prices: An Empirical Investigation of the Nordic Stock Markets. European Financial Management. doi: 10.1111/EUFM.12041
- Article first published online: 2 MAR 2014
- Asset-pricing model;
- illiquidity effect;
- predicted factor risk premium;
- model betas
This paper presents a simplified single period asset-pricing model adjusted for liquidity and tests it for the Nordic markets. The detailed empirical evidence is presented from Finnish test case. Empirical testing of small yet developed markets is motivated by the increased relevance of the illiquidity effect for illiquid assets/markets. The main evidence reports liquidity risk makes sufficiently larger part of predicted factor risk premium than the market risk, contrary to comparable US evidence. This highlights the ability of liquidity related model betas in capturing the time variation in expected returns across illiquid (Nordic) markets than market beta.