臺大管理論叢 NTU Management Review VOL.29 NO.1

The Illiquidity Premium: Further Evidence from Global and Asia-Pacific Markets 14 emerging markets. It follows that investors in emerging markets require a higher compensation for illiquidity, partly reflecting the observation in Table 1 that the emerging markets are also more illiquid. Finally, we report the α IML,c averaged across the 16 Asia-Pacific markets. Here too we find strong evidence for a positive return premium for illiquidity: the return-weighted α IML,c is both statistically and economically significant at 1.05% per month ( t = 6.05). The point estimate of α IML,c for the Asia-Pacific markets are closer to that for emerging markets, emphasizing that the illiquidity premium in Asia-Pacific markets are relatively high and close to that in emerging markets worldwide. The above findings are highly robust. We repeat the estimation of IML c and α IML,c using the other two alternative weighting schemes, where stocks in the portfolios are either weighted by their market capitalization (value-weighted) or trading volume in the previous period (volume-weighted). Table 2 shows that the main findings on the positive premium for illiquidity worldwide and within emerging, developed and Asia-Pacific sub- groups remain intact when we employ different weighting schemes. The point estimate of the global volume-weighted average α IML,c is significant at 0.77% per month ( t = 6.2) and is very close to that reported using return-weights. We reach a similar conclusion when α IML,c is estimated by averaging across the emerging, developed and Asian markets. When we apply value-weights, which overemphasizes larger firms, the global average α IML,c continues to be significant and all the relative assessments remain unchanged, although the magnitude is smaller. For example, the value-weighted α IML,c for global, emerging, developed and Asia-Pacific markets are 0.5% ( t = 5.2), 0.69% ( t = 4.7), 0.37% ( t = 2.95) and 0.52% ( t = 3.59) respectively (see Table 2). We also reach similar conclusions based on the non-parametric tests of the percentage of positive α IML,c . Overall, the differential returns on the portfolio of illiquid and liquid stocks suggest that there is an economically significant premium for illiquidity.