Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/202663
Authors: 
Anderson, Richard G.
Binner, Jane M.
Hagströmer, Björn
Nilsson, Birger
Year of Publication: 
2015
Series/Report no.: 
Birmingham Business School Discussion Paper Series 2015-02
Abstract: 
This paper investigates whether investors are compensated for taking on commonality risk in equity portfolios. A large literature documents the existence and the causes of commonality in illiquidity, but the implications for investors are less well understood. In a more than fifty year long sample of NYSE stocks, we find that commonality risk carries a return premium of around 2.6 per cent annually. The commonality risk premium is statistically and economically significant, and substantially higher than what is found in previous studies. It is robust when controlling for illiquidity level effects, different investment horizons, as well as variations in illiquidity measurement and systematic illiquidity estimation.
URL of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-sa/2.5/
Document Type: 
Working Paper

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