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Asian Review of Financial Research, Vol., No..
pp.1626~1667
pp.1626~1667
State-Dependent Illiquidity Premium in the Korean Stock Market
Jeewon Jang College of Business, Korea Advanced Institute of Science and Technology, Seoul, Korea
Jangkoo Kang Graduate School of Finance & Accounting, College of Business, Korea Advanced Institute of Science and Technology, Seoul, Korea
Changjun Lee College of Business Administration, Hankuk University of Foreign Studies
We study the relation between the illiquidity premium and economic states in the Korean stock market. We find that aggregate market liquidity improves following real economic expansions and expansive monetary states and worsens after economic recessions and restrictive monetary states. The improved liquidity in the expansion/expansive state generates a huge illiquidity premium, while an illiquidity premium does not exist in the recession/restrictive state. As a result, the observed illiquidity premium displays strong state-dependent variations. Our empirical results indicate that a significant unconditional illiquidity premium in the Korean stock market arises due to an astonishing illiquidity premium in the expansion/expansive state.
Jeewon Jang
Jangkoo Kang
Changjun Lee
We study the relation between the illiquidity premium and economic states in the Korean stock market. We find that aggregate market liquidity improves following real economic expansions and expansive monetary states and worsens after economic recessions and restrictive monetary states. The improved liquidity in the expansion/expansive state generates a huge illiquidity premium, while an illiquidity premium does not exist in the recession/restrictive state. As a result, the observed illiquidity premium displays strong state-dependent variations. Our empirical results indicate that a significant unconditional illiquidity premium in the Korean stock market arises due to an astonishing illiquidity premium in the expansion/expansive state.
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