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

The Illiquidity Premium: Further Evidence from Global and Asia-Pacific Markets 6 ILLIQ i,t = N i,t d=1 |r i,d,t | Dvol i,d,t 1 N i,t where | r i,d,t | is the absolute value of return on stock i on day d during month t , Dvol i,d,t is the trading volume in US dollars of stock i on day d , and N i,t is the number of trading days (with non-zero volume) during month t . ILLIQ is a low frequency measure of how much the price of a stock moves in response to a dollar of trading volume and can be viewed as the price impact of trading. ILLIQ is well suited as a measure of illiquidity in international stock market studies as it relies on only daily return and volume data, which are easily available for many markets. Importantly, ILLIQ is found to be strongly correlated with high frequency (intra-day) measures of price impact (Amihud, 2002; Hasbrouck, 2009; Goyenko, Holden, and Trzcinka, 2009; Fong, Holden, and Trzcinka, 2017). The illiquidity ratio has also been recently used in several other studies of commonality in illiquidity in international markets (Karolyi et al., 2012; Amihud et al., 2015). We follow the method employed in Amihud et al. (2015) in constructing ILLIQ . For each stock in month t , ILLIQ i,t is calculated using daily return and volume data over a three-month period from t -3 to t -1. To ensure that there is adequate data to compute reliable estimate of ILLIQ , we apply several data filters. We require that the stocks have at least 10 valid (non-zero) trading volume days in the three-month period and at least three valid trading volume days in the last trading month t -1. The monetary value of stock trading volume is converted to US dollars using daily exchanges rates, and we exclude days that have trading volume below 100 US dollars. We also delete ILLIQ observations that belong to the extreme 1% in each month within each market/country. Finally, to be in the final sample, we require that there are at least 50 valid stocks satisfying all the above filters within a market for each month. 4 4 Within each market, we delete months with less than 50 valid stock observations.