Is there an illiquidity premium in frontier markets? |
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| Institution: | 1. Department of Corporate Finance, Institute of Accounting and Finance Management, Poznań University of Economics and Business, al. Niepodległości 10, 61-875 Poznań, Poland;2. Department of Investment and Capital Markets, Institute of Finance, Poznań University of Economics and Business, al. Niepodległości 10, 61-875 Poznań, Poland;4. College of Business, Zayed University, P.O. Box 144534, Abu Dhabi, United Arab Emirates |
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| Abstract: | We perform a comprehensive examination of the role of stock-level liquidity in the cross-section of frontier market stock returns. Using several popular liquidity measures and a battery of asset pricing tests, we investigate the illiquidity premium in 22 countries for the years 1991–2019. Contrary to typical relationships in developed and emerging markets, we find no evidence of illiquidity premium in frontier equities. Our findings support the hypothesis that for countries not fully integrated with the global economy, the diversification benefits offset the illiquidity, which, in turn, proves less important. |
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