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Illiquidity discounts at Swedish stock exchanges
Mid Sweden University, Faculty of Human Sciences, Department of Business, Economics and Law.
Mid Sweden University, Faculty of Human Sciences, Department of Business, Economics and Law.
2016 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

The cost of illiquidity arises when there is a lack of buyers and sellers who are willing to trade at the same level. Thus, in these kind of situations traders might not have the possibility to trade their securities at current market value. When the frequency of transactions is low, sellers can be forced to accept lower prices to meet a lower demand of the security, therefore investors are often willing to pay a premium for liquidity and could also argue for an illiquidity discount while trading securities with low liquid securities (Damodaran, 2005).In order to estimate the illiquidity discount several approaches has been carried out and investigated by former authors. This paper summarizes former studies in this area and provides empirical evidences from three different approaches used to estimate the illiquidity discount, the bid-ask spread-, IPO-, and the Restricted stock approach.The purpose with this paper is to estimate the illiquidity discount at Swedish exchanges. Moreover, this papers aim is to investigate whether or not there is a disparity across Swedish exchanges in terms of the magnitude of the illiquidity discount. The method to estimate the illiquidity discount has been the relative bid ask spread on a daily basis combined with historical data from the relevant Swedish exchanges and a comparison between theinvestigated exchanges. Thereafter a comparison across the investigated exchanges and the corresponding bid-ask spread were performed. In order to estimate the illiquidity discount several approaches has been carried out and investigated by former authors. This paper summarizes former studies in this area and provides empirical evidences from three different approaches used to estimate the illiquidity discount, the bid-ask spread-, IPO-, and theRestricted stock approach.The most valuable result of this paper is that a statistically significant difference across Swedish exchanges in terms of the magnitude of the illiquidity discount has been shown. Moreover no statistical significant results could be found regarding if the volume had a negative relationship with the relative bid-ask spread, however tendencies could be found that it seems to be so.

Place, publisher, year, edition, pages
2016. , 49 p.
Keyword [en]
Discount for lack of marketability (DLOM), illiquidity, discount, bid-ask spread, firm value, market maker, volume, transaction and volatility.
National Category
Business Administration
Identifiers
URN: urn:nbn:se:miun:diva-27619OAI: oai:DiVA.org:miun-27619DiVA: diva2:927020
Subject / course
Business Administration FE1
Supervisors
Examiners
Available from: 2016-05-10 Created: 2016-05-10 Last updated: 2016-05-10Bibliographically approved

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CiteExportLink to record
Permanent link

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Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
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  • asciidoc
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