Asset pricing and the illiquidity premium

Howard W. Chan, Robert W. Faff*

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

72 Citations (Scopus)

Abstract

In this paper, we examine the asset-pricing role of liquidity (as proxied by share turnover) in the context of the Fama and French (1993) three-factor model. Our analysis employs monthly Australian data, covering the sample period from 1990 to 1998. The key finding of our research is that the main test is unable to reject the test of over-identifying restrictions, thus supporting the overall favorability of the liquidity-augmented Fama-French model. In addition, we find that the asset-pricing performance of the liquidity factor is generally very robust to a wide range of sensitivity checks.

Original languageEnglish
Pages (from-to)429-458
Number of pages30
JournalFinancial Review
Volume40
Issue number4
DOIs
Publication statusPublished - Nov 2005
Externally publishedYes

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