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dc.contributor.authorGrillini, Stefano*
dc.contributor.authorOzkan, Aydin*
dc.contributor.authorSharma, Abhijit*
dc.contributor.authorAl Janabi, M.A.M.*
dc.date.accessioned2019-05-21T06:34:50Z
dc.date.available2019-05-21T06:34:50Z
dc.date.issued2019-07
dc.identifier.citationGrillini S, Ozkan A, Sharma A et al (2019) Pricing of time-varying illiquidity within the Eurozone: Evidence using a Markov switching liquidity-adjusted capital asset pricing model. International Review of Financial Analysis. 64: 145-158.en_US
dc.identifier.urihttp://hdl.handle.net/10454/17055
dc.description.abstractThis paper investigates time-varying characteristics of illiquidity and the pricing of its risk using a liquidity-adjusted capital asset pricing model (L-CAPM). Collecting data from a pool of Eurozone countries between 1990 and 2018, we employ Markov switching models to assess the degree of persistence of illiquidity shocks. Contrary to prior research, which largely makes use of autoregressive (AR) processes, we provide strong evidence that illiquidity is time-varying and the persistence of shocks determines two distinct regimes characterised by high and low illiquidity. We assess pricing of illiquidity risk by developing and empirically testing a conditional L-CAPM model, where different regimes constitute priced risk factors for the cross-section of stock returns. We extend previous unconditional versions of L-CAPM models and we show that the various channels through which illiquidity affects asset returns and price of risks are time-varying. We find strong support for our conditional L-CAPM and our results are robust to alternative specifications and estimation techniques. These findings have important implications for portfolio management practices and are relevant to portfolio and risk managers and regulatory institutions.en_US
dc.language.isoenen_US
dc.relation.isreferencedbyhttps://doi.org/10.1016/j.irfa.2019.05.002en_US
dc.rights© 2019 Elsevier. Reproduced in accordance with the publisher's self-archiving policy. This manuscript version is made available under the CC-BY-NC-ND 4.0 license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
dc.subjectEurozoneen_US
dc.subjectMarkoven_US
dc.subjectIlliquidityen_US
dc.subjectL-CAPMen_US
dc.titlePricing of time-varying illiquidity within the Eurozone: Evidence using a Markov switching liquidity-adjusted capital asset pricing modelen_US
dc.status.refereedYesen_US
dc.date.Accepted2019-05-08
dc.date.application2019-05-17
dc.typeArticleen_US
dc.date.EndofEmbargo2021-01-18
dc.type.versionAccepted manuscripten_US
dc.description.publicnotesThe full-text of this article will be released for public view at the end of the publisher embargo on 18 Jan 2021.


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