Liquidity premium in the Balkan frontier stock markets
(English)Manuscript (preprint) (Other academic)
The effect of liquidity level on stock returns is studied for four Balkan frontier markets. Stocks sorted into portfolios based on liquidity level show significant premium for holding illiquid stocks in three of the four studied markets. A puzzling result in Romania is the negative liquidity premium. The CAPM as well as augmented CAPM (augmented with liquidity, size factor and momentum factor) are found to perform very well in explaining the portfolio returns in the studied Balkan frontier markets. Results indicate that investors demand a liquidity level premium for holding stocks that have high transaction costs and/or are infrequently traded.
frontier stock market, liquidity, liquidity premium
IdentifiersURN: urn:nbn:se:su:diva-109170OAI: oai:DiVA.org:su-109170DiVA: diva2:763338