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Yakov Amihud

is Ira Leon Rennert Professor of Entrepreneurial Finance at the Stern School of Business, New York University. His research focuses on the effects of the liquidity of stocks and bonds on their values and returns, and on the design and evaluation of securities markets’ trading systems. He is the coauthor of a recently published book Market Liquidity: Asset Pricing, Risk and Crises, as well as of over one hundred research articles. He has also advised the NYSE, AMEX, CBOE, CBOT and other securities markets. His research also includes the evaluation of corporate financial policies, dividend policy, mergers and acquisitions, initial public offerings, objectives of corporate managers and their risk taking, and law and finance. He has published more than eighty research articles in professional journals and in books, and edited and coedited five books on topics such as LBOs, bank M&As, international finance and securities market design.

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The Pricing of the Illiquidity Factor's Systematic Risk

This paper presents a liquidity factor IML, the return on illiquid-minus-liquid stock portfolios. The IML, adjusted for the common risk factors, measures the illiquidity premium whose annual alpha is about 4% over the period 1950-2012. I then test whether the systematic risk (β) of IML is priced in a multi-factor CAPM. The model allows for a conditional β of IML that rises with observable funding illiquidity and adverse market conditions. The conditional IML β is positively and significantly priced, and remains so after controlling for the beta of illiquidity shocks.

Last modified: 2018.11.30.