Article ID: | iaor1994953 |
Country: | Switzerland |
Volume: | 45 |
Issue: | 1/4 |
Start Page Number: | 297 |
End Page Number: | 305 |
Publication Date: | Dec 1993 |
Journal: | Annals of Operations Research |
Authors: | Perttunen Jukka, Martikainen Teppo, Luoma Martti |
Keywords: | financial |
Financial economics literature indicates that estimates for securities’ systematic risk, i.e. the beta coefficients, are highly affected by infrequent trading. This is an especially serious problem in small security markets. In this study, the applicability of an error-correction model is investigated for modeling the risk behaviour of thinly traded securities. The empirical results from a small stock market, i.e. the Helsinki Stock Exchange, indicate the estimated error-correction term to be highly dependent on the underlying trading frequency of the stock, while the direct effect is dependent merely on the market value of the firm. The model thus appears to product useful information about the risk characteristics of thinly traded stocks.