Details

Autor(en) / Beteiligte

• Chipalkatti, Niranjan
• Luft, Carl
• Levine, Lawrence M
• Mondal, Lummezen

Titel

Estimating the Marketability Discounts: A Comparison Between Bid-Ask Spreads, and Longstaff's Upper Bound

Ist Teil von

• Journal of applied finance : JAF, 2013-01, Vol.23 (1), p.57

Ort / Verlag

Tampa: Financial Management Association International

Erscheinungsjahr

2013

Quelle

EBSCOhost Business Source Ultimate

Beschreibungen/Notizen

• This paper contends that the discount for lack of marketability (DLOM) is the difference between the stock price of a liquid company and an equivalent illiquid company and reflects the lack of a free-trading option that is embedded within a company's stock. Longstaff derived a model that views this liquidity swap as a lookback option. We equate this option to the Bid-Ask spread of a stock consistent with the market microstructure literature. We construct a model for the DLOM using the Longstaff (1995) metric and the Bid-Ask spread of Over-the-Counter Bulletin Board stocks as a proxy. We find that our spread-based model does a better job of predicting restricted stock dis counts than the Longstaff metric. We include a case study on two companies to illustrate our methodology. [PUBLICATION ABSTRACT]