Extreme illiquidity and stock returns: Evidence from Thailand market

Extreme illiquidity (EIL) is priced in the cross-section of stock returns in the Thailand market. The EIL premium permeates stock categories with various risk factor loadings and characteristics. EIL is persistent and has predictive power for expected stock returns to at least a one-year horizon. The Market for Alternative Investment (MAI) with a higher proportion of individual investors, who are more active in trading than institutional investors, carries a higher EIL premium than the Stock Exchange of Thailand (SET). While the tradable EIL factor captures an important source of risk missed by the conventional risk factors, EIL as a characteristic has higher explanatory power in the cross-section than EIL as a covariance risk.