Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260082 
Year of Publication: 
2013
Series/Report no.: 
Working Paper No. 2013:24
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
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 understood. We find a return premium for commonality risk in NYSE stocks that is both economically and statistically signi cant. The commonality risk premium is independent of illiquidity level effects, and robust to variations in illiquidity measurement and systematic illiquidity estimation. We also show that precision in commonality risk estimation can be increased by the use of daily illiquidity measures, instead of monthly.
Subjects: 
commonality
commonality risk premium
asset illiquidity
systematic illiquidity
liquidity
effective tick
JEL: 
G11
G12
Document Type: 
Working Paper

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