Illiquidity Premium in the MILA |
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| Authors: | Darcy Fuenzalida Luis Berggrun Samuel Mongrut |
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| Institution: | 1. Universidad Tecnica Federico Santa Maria, Valparaiso, Chile;2. Universidad Icesi, Cali, Colombia;3. EGADE Business School, ITESM, Mexico, Queretaro, Qro. Mexico;4. Universidad del Pacífico Research Center (CIUP), Lima, Peru |
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| Abstract: | This article analyzes the illiquidity premium in the MILA. Using seven proxies for illiquidity, we find a positive and significant illiquidity premium for our sample. A microstructure bias-free portfolio weighting based on past returns is critical in our finding of an illiquidity premium, which is robust to several methodological changes in our portfolio simulations. We also document that the premium is present only in small and high book-to-market stocks. Nonetheless, when we control for size and distress effects, the difference and significance in risk-adjusted returns between portfolios of high and low illiquidity stocks remains. |
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| Keywords: | Latin American Integrated Market liquidity Mercado Integrado Latinoamericano portfolios |
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