Valuing Thinly Traded Assets

• 成果类型: Article
• 署名作者: Longstaff, Francis A.
• 署名单位: University of California System; University of California Los Angeles; National Bureau of Economic Research
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2016.2718
• 发表日期: 2018
• 页码: 3868-3878
• 关键词: Asset pricing; liquidity; finance; INVESTMENT

摘要

We model illiquidity as a restriction on the stopping rules investors can follow in selling assets, and apply this framework to the valuation of thinly traded investments. We find that discounts for illiquidity can be surprisingly large, approaching 30%-50% in some cases. Immediacy plays a unique role and is valued much more than ongoing liquidity. We show that investors in illiquid enterprises have strong incentives to increase dividends and other cash payouts, thereby introducing potential agency conflicts. We also find that illiquidity and volatility are fundamentally entangled in their effects on asset prices. This aspect may help explain why some assets are viewed as inherently more liquid than others and why liquidity concerns are heightened during financial crises.