Price delay premium and liquidity risk

► Hou and Moskowitz (2005) document the price delay premium. ► They attribute the premium to inadequate risk sharing arising from lack of investor recognition. ► We show that firms with greater price delay have more difficulty attracting traders. ► And, their investors face higher liquidity risk, which accounts for their anomalous returns. ► Thus, price delay premium is due to systematic liquidity risk, not inadequate risk sharing.