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

The Illiquidity Premium: Further Evidence from Global and Asia-Pacific Markets 20 Similar to the results based on α IMLc , we find that the coefficient a1 of DUM- ASIAPAC c is not significantly different from zero. To summarize, the analyses based on portfolios formed on illiquidity sorting and the cross-sectional regressions of individual stock returns on illiquidity produce remarkably consistent results. Overall, we find compelling evidence that investors demand a higher return premium for less liquid stocks in the international stock markets. 4. Conclusion In this study we document strong evidence of a positive and economically significant illiquidity premium in the international equity markets during the period from 1990 to 2015, which supports our earlier evidence in Amihud et al. (2015). The global illiquidity premium is a large 0.72% per month based on difference in the returns on the illiquid and liquid portfolios. This premium is not explained by exposure to global and regional risk factors. The risk-adjusted illiquidity premium is significantly positive at 0.85% per month. We find similar evidence for Asia-Pacific markets: the monthly risk-adjusted illiquidity premium is an economically large 1.05%. Our findings are economically meaningful in that they suggest that corporate managers as well as policy-makers and regulators should endeavour to improve stock illiquidity. Improvements in liquidity lower the illiquidity premium demanded by the investors, thereby reducing the cost of capital incurred by corporations when they raise funds in the stock market.