State-Dependent Illiquidity Premium in the Korean Stock Market

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We study the relation between the illiquidity premium and economic states in the Korean stock market. We find that aggregate market liquidity improves following real economic expansions and expansive monetary states and worsens after economic recessions and restrictive monetary states. The improved liquidity in the expansion-expansive state generates a huge illiquidity premium, while an illiquidity premium does not exist in the recession-restrictive state. As a result, the observed illiquidity premium displays strong state-dependent variations. Our empirical results indicate that a significant unconditional illiquidity premium in the Korean stock market arises due to a substantial illiquidity premium in the expansion-expansive state.
Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
Issue Date
2015-03
Language
English
Article Type
Article
Keywords

LIQUIDITY RISK; CROSS-SECTION; RETURNS; MODEL

Citation

EMERGING MARKETS FINANCE AND TRADE, v.51, no.2, pp.400 - 417

ISSN
1540-496X
DOI
10.1080/1540496X.2015.1016842
URI
http://hdl.handle.net/10203/198827
Appears in Collection
MT-Journal Papers(저널논문)
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