Tuesday 4 June – from 15:30 to 16:30

Liquidity Premia and Bid-Ask Spreads: Evidence from 94 Years in the U.S. Stock Market
(with Emanuele Guidotti and Tim Kroencke)

David Ardia, Associate Professor, Department of Decision Sciences, HEC Montréal

Abstract:

This paper examines liquidity premia where liquidity is measured by effective bid-ask spreads. We find that the liquidity premium accounts for 20% of the total equity premium, and the price of illiquidity has remained stable over almost one century. Liquidity is more strongly priced in January but also significant in non-January months. Our results suggest that liquidity is priced across all stocks, although samples restricted to larger stocks may lack power and achieve lower statistical significance. Stocks with higher spreads are associated with lower prices of illiquidity and higher liquidity premia. Finally, we link bid-ask spreads to Amihud’s illiquidity measure.

Registration, please contact robin@em-lyon.com

Room 1106 – Ecully campus