Pricing, dynamics, and determinants of illiquidity risks: International evidence

We estimate conditional LCAPM illiquidity risks for common stocks in emerging and developed markets. We find that illiquidity risks are determined by local factors for both markets and are more strongly priced in emerging markets. Illiquidity risks exhibit no time trend and experienced an increase during the recent financial crisis that is not completely reversed a year after. Finally, we explore the determinants of illiquidity risks and find that business cycle determinants have similar explanatory ability in both sets of markets, while the effect of monetary policy and liquidity funding is more strongly supported in developed and emerging markets, respectively.