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Topic: Illiquidity

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	ILLIQUIDITY AND STOCK RETURNS: Cross-Section and Time-Series Effects by Yakov Amihud* (SMEALSearch) - ... (Site not responding. Last check: 2007-08-30)
		New tests are presented on the effects of stock illiquidity on stock return.
		The illiquidity measure here is the average daily ratio of absolute stock return to dollar volume, which is easily obtained from daily stock data for long time series in most stock markets.
		Illiquidity affects more strongly small firms stocks, suggesting an explanation for the changes "small firm effect" over time.
	gunther.smeal.psu.edu /27333.html (265 words)

	Illiquidity Can Cost You A Fortune (Site not responding. Last check: 2007-08-30)
		Often, when I speak to people about the need to diversify their portfolios to include life insurance as a means of protecting their wealth for their children, they respond that they don't need the protection of insurance because their assets are liquid.
		They have, for so long, been taught to look out for the dangers of illiquidity that they have forgotten to consider the other dangers which lurk through the financial jungle.
		However, if you and your spouse are average age 60, you could purchase a life insurance policy for one payment of $820,000, based on current assumptions, that would yield $8.2 million.
	www.barrykaye.com /Illiquidity.htm (1298 words)

	Illiquidity - Forbes.com (Site not responding. Last check: 2007-08-30)
		Illiquid securities can be common stocks that are issued by a privately held company; convertible preferred stocks (convertible into common shares at the option of the owner); limited partnerships (where the liability is limited to the amount of the investment); or convertible debentures (also convertible into common shares at the option of the owner).
		Public securities are also frequently considered illiquid simply because there are not enough buyers and sellers to make an active market in the stock.
		They'll say 'I think that security is liquid.' And we're like 'well, it's illiquid enough that the SEC makes you flag it in your reports.' And they'll be, 'well I was able to buy it,' when that's not the issue.
	www.forbes.com /1998/06/16/feat_side1.html (561 words)

	Commercial Paper reading (Site not responding. Last check: 2007-08-30)
		It is shown that a security's required return depends on its expected illiquidity and on the covariances of its own return and illiquidity with market return and market illiquidity.
		The costs of illiquidity are avoided if the relationship lender is a bank with a fragile capital structure, subject to runs.
		The price of the illiquid asset decreases if the asset is in small supply, but may increase if the supply is large.
	www.stanford.edu /~jjgravel/reading/cp_reading.html (11242 words)

	Abstract: AN ECONOMETRIC MODEL OF SERIAL CORRELATION AND ILLIQUIDITY IN HEDGE-FUND RETURNS
		In this paper, we explore several sources of such serial correlation and show that the most likely explanation is illiquidity exposure, i.e., investments in securities that are not actively traded and for which market prices are not always readily available.
		For portfolios of illiquid securities, reported returns will tend to be smoother than true economic returns, which will understate volatility and increase risk-adjusted performance measures such as the Sharpe ratio.
		We propose an econometric model of illiquidity exposure and develop estimators for the smoothing profile as well as a smoothing-adjusted Sharpe ratio.
	web.mit.edu /alo/www/Papers/serialhf.html (191 words)

	NSE - Indices FAQs - Component illiquidity contaminates index
		So diversification yields diminishing returns, and illiquid stocks are best kept out of an index....
		Illiquid stocks yield bad price data; so the best quality data will come from the most liquid exchange.
		This is one more reason why illiquid stocks should be excluded from a market index; indeed this aspect requires that the liquidity of a stock in an index should be proportional to its market capitalisation.
	www.nseindia.com /indices/ind_faq2.htm (516 words)

	Illiquidity Raises Investment Risk
		It was a clear example, he observes, of how "illiquid assets become very risky in volatile times," as the preference for liquid assets creates an environment in which "the negative effect of volatility is reflected more strongly on (the suddenly shunned) illiquid assets."
		In other words, if one were to remove the "performance-based" pressure to sell, then the risks associated with the illiquid assets would remain constant, and the value of illiquid assets would not escalate so sharply, if at all, relative to liquid assets when markets take a dive.
		He warns that if they evaluate illiquid assets based on their average risk (average "beta" in the CAPM analysis), failing to note that they can become considerably riskier during volatile times, then investment strategies could appear better than they actually are.
	www.nber.org /digest/jun04/w10327.html (375 words)

	Intelligent Hedge Fund Investing - Barry Schachter, Editor - Published 2004
		For a trader, or an investor, understanding the potential effects of illiquidity on an investment is not an afterthought but rather an integral part of the trading decision.
		She tells us that, a greater part than we might have thought of the effects of illiquidity are behavioral, and in one important case at least an argument can be made that the behavioral implications may cause an investor to favor an illiquid investment (other things equal, of course).
		This line of thinking suggests that investors need to ask, not only what are the costs and benefits of illiquidity associated with hedge fund investing, but also, is the expected return to that investing sufficient compensation for both the price risk being taken and the illiquidity risks being borne.
	www.intelligenthedgefundinvesting.com /ch04.html (764 words)

	SSRN-The Expected Illiquidity Premium: Evidence from Equity Index-Linked Bonds by Elroy Dimson, Bernt Hanke
		We examine a set of equity index-linked bonds that provide the same payoff as an investment in an equity index but are relatively illiquid.
		This enables us to link time variation in the illiquidity premium to security-specific attributes related to their marketability.
		We show that liquidity risk has a systematic component, and relate this market-wide factor to a number of macroeconomic variables that have previously been shown to be related to illiquidity.
	papers.ssrn.com /sol3/papers.cfm?abstract_id=248617 (367 words)

	Mico heading for more illiquidity
		Further, the terms of the buyback are very restrictive, since it is on a proportionate basis as well as subject to a maximum of 200 shares per holder.
		Therefore, the bigger shareholders will be constrained by the limit of 200 shares, while small shareholders will see a maximum of 10 per cent of their holdings being liquidated (assuming that all the minority shareholders participate).
		Mico has a history of high profitability and huge cash generation, but at the same time, if one goes by the dividend payout and illiquidity in the stock, shareholdershave not really benefitted much in the past.
	www.expressindia.com /fe/daily/19990511/fma10005.html (537 words)

	An illiquidity premium in stock returns? - Evidence from the Stockholm Stock Exchange
		The purpose of this present study is, first, to describe the concept of liquidity, to discuss ways how to measure liquidity, and to review previous research with respect to illiquidity premiums in stock returns.
		Second, the purpose is also to investigate empirically whether the level of implicit trading costs and illiquidity contributes to the explanation of the cross-sectional variation in stock returns on the Stockholm Stock Exchange during the period from 1995 to 2004.
		Only weak empirical evidence of an illiquidity premium in stock returns on the Stockholm Stock Exchange is found.
	www.handels.gu.se /epc/archive/00004758 (244 words)

	Market Illiquidity as a Source of Model Risk in Dynamic Hedging - Frey (ResearchIndex) (Site not responding. Last check: 2007-08-30)
		Abstract: In the present paper we study market illiquidity as a particular source of model risk in the hedging of derivatives.
		We depart from the usual Black-Scholes framework, where it is assumed that option hedgers are small traders, and consider a model where the implementation of a hedging strategy aects the price of the underlying security.
		We derive a formula for the feedback-eect of dynamic hedging on market volatility and present a formula for the hedging error due to market illiquidity....
	citeseer.ist.psu.edu /352695.html (642 words)

	SSRN-Market Microstructure and Asset Pricing: On the Compensation for Market Illiquidity in Stock Returns by Michael ...
		Since illiquidity increases the round-trip trading cost of an investor, this implies that uninformed investors will demand higher rates of return from securities in which informational asymmetries are more severe.
		In this paper we derive a simple relationship between expected stock returns and market illiquidity in a model with a single representative investor.
		Using CRSP data for the period 1984-1992, and ISSM intraday data for the year 1988, we investigate the empirical relation between stock returns and measures of market illiquidity.
	papers.ssrn.com /sol3/papers.cfm?abstract_id=5484 (302 words)

	Research Projects at RiskLab
		Extend modelling of illiquidity as proposed in previous work to allow for changing market illiquidity.
		Study the implications of market illiquidity for hedge cost and relate the results to existing pricing biases such as smiles and skews.
		Finally, we plan to go one step further and try to find variables with predictive power for market illiquidity, which could serve as an "early warning" tool for market participants, telling them when to correct their risk measures upward.
	www.risklab.ch /Projects.html (4468 words)

	The Illiquidity Puzzle: Theory and Evidence from Private Equity
		By choosing the degree of illiquidity of the security, the manager can influence the type of investors the firm will attract.
		The benefit of liquid investors is that they reduce the manager's cost of capital for future fund raising.
		"The illiquidity puzzle: theory and evidence from private equity," Journal of Financial Economics, Elsevier, vol.
	ideas.repec.org /p/nbr/nberwo/9146.html (837 words)

	Fictitious Capital, Real Debts: Systemic Illiquidity in the Financial Crises of the Late 1990s -- Nesvetailova 38 (1): ...
		Fictitious Capital, Real Debts: Systemic Illiquidity in the Financial Crises of the Late 1990s -- Nesvetailova 38 (1): 45 -- Review of Radical Political Economics
		Articles by Nesvetailova, A. Fictitious Capital, Real Debts: Systemic Illiquidity in the Financial Crises of the Late 1990s
		progressive illiquidity, and the debt burdens incurred during
	rrp.sagepub.com /cgi/content/abstract/38/1/45 (146 words)

	Renishaw Up As Illiquidity Magnifies Buy \| newratings.com (Site not responding. Last check: 2007-08-30)
		Tuesday, June 28, 2005 8:40:26 AM ET Dow Jones Newswires
		Doesn't see any news specific to the stock.
		A trader notes illiquidity of the stock means "any order will push it around" and thus says the move is purely technical.
	www.newratings.com /analyst_news/article_893759.html (211 words)

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