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The value of tradeability


Chesney, Marc; Kempf, Alexander (2012). The value of tradeability. Review of Derivatives Research, 15(3):193-216.

Abstract

This paper determines the value of asset tradeability in an option pricing framework. In our model, tradeability is valuable since it allows investors to exploit temporary mispricings of stocks. The model delivers several novel insights on the value of tradeability: The value of tradeability is the larger, the higher the pricing efficiency of the market is. Uncertainty increases the value of tradeability, no matter whether the uncertainty results from noise trading or from new information about the fundamental value of the stock. The value of tradeability is the larger, the longer the illiquid stock cannot be traded and the more trading dates the liquid stock offers.

Abstract

This paper determines the value of asset tradeability in an option pricing framework. In our model, tradeability is valuable since it allows investors to exploit temporary mispricings of stocks. The model delivers several novel insights on the value of tradeability: The value of tradeability is the larger, the higher the pricing efficiency of the market is. Uncertainty increases the value of tradeability, no matter whether the uncertainty results from noise trading or from new information about the fundamental value of the stock. The value of tradeability is the larger, the longer the illiquid stock cannot be traded and the more trading dates the liquid stock offers.

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1 citation in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:15 October 2012
Deposited On:16 Sep 2011 15:03
Last Modified:05 Apr 2016 15:01
Publisher:Springer
Series Name:NCCR FINRISK Working Paper Series
Number of Pages:43
ISSN:1380-6645
Publisher DOI:https://doi.org/10.1007/s11147-012-9074-0

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