International Illiquidity
Event details
| Date | 15.01.2016 |
| Hour | 10:30 › 12:00 |
| Speaker | Aytek MALKHOZOV (Bank for International Settlements, Basel) |
| Location | |
| Category | Conferences - Seminars |
Using a parsimonious international asset pricing model in which frictions dislocate security prices from the levels implied by their risk, we derive predictions regarding the effect of illiquidity on the cross-section of international stock returns. Empirically, we first construct daily proxies for illiquidity for six different countries, which exhibit a strong common component but also idiosyncratic variation. With these measures, we document the following findings: First, higher global illiquidity implies a lower slope and higher intercept of the international security market line. Second, alphas and Sharpe ratios are increasing in local illiquidity. Third, betting-against-beta (BAB) strategies in high illiquidity countries outperform those in low illiquidity countries and fourth, accounting for illiquidity improves on the performance of BAB strategies.
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