Journal Article

Liquidity premia during the industrial breakthrough: evidence from the Stockholm Stock Exchange, 1901–1919

Otto Gernandt, Thomas Palm and Daniel Waldenström

in European Review of Economic History

Volume 16, issue 3, pages 247-269
Published in print August 2012 | ISSN: 1361-4916
Published online May 2012 | e-ISSN: 1474-0044 | DOI: http://dx.doi.org/10.1093/ereh/hes002
Liquidity premia during the industrial breakthrough: evidence from the Stockholm Stock Exchange, 1901–1919

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This paper analyzes the importance of liquidity in determining security returns for firms listed on the Stockholm Stock Exchange between 1901 and 1919. Using a new and detailed firm-level data set with matching stock price and balance sheet information, we construct new stock return indices as well as firm-specific liquidity measures for our empirical analysis. Our main finding is that there was a substantial illiquidity effect on returns. Securities in the 25th percentile of the liquidity distribution earned, on average, a 0.59 percent higher monthly return than securities in the 75th percentile. This effect is comparable with estimates from modern stock markets and suggests that the liquidity premium is not solely a modern phenomenon but could be an inherent characteristic of financial markets.

Journal Article.  8925 words.  Illustrated.

Subjects: Industrial History ; Labour History ; Economic History

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