Speaker: E. Robert Fernholz
Title: The Implied Liquidity Premium for Equities
Affiliation: INTECH
Date: Friday, February 24, 2006.
Place and Time: Room 101 - Love Building, 3:35-4:30 pm.
Refreshments: Room 204 - Love Building, 3:00 pm.

Abstract. Over the long term, the returns on smaller stocks are likely to be higher than the returns on larger stocks. This phenomenon has been called "size effect", and a number of explanations have been proposed to account for it. We show that the difference in return between the larger and the smaller stocks can be accounted for by a liquidity premium for the smaller stocks, and we estimate the value of this premium using structural parameters for the capital distribution of the U.S. stock market during the 1990s.