International Journal For Multidisciplinary Research

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Pricing the Illiquidity Premium for Private Market Assets

Author(s) Gaurav Barick
Country India
Abstract The purpose of this paper is to examine the effect of illiquidity on the value of assets using an options approach. The paper uses two experiments (Hydropower & Damodaran data) to determine the illiquidity. Evidence suggests that erroneous assumptions of the illiquidity premium priced into an asset may ultimately misrepresent an investments value and the risk-return profile. Determining a liquidity standard and an appropriate independent measurement of illiquidity premiums are compared using common yet varying illiquidity pricing theories. Current insights and illiquidity impacts through measurement practices being followed by asset managers are assessed using data of highly illiquid private market assets. Experimental analysis of illiquidity pricing theories are measured against common industry practices of private market assets to reveal inaccuracies in illiquidity premiums. In this paper, the researcher has conducted two sets of experiments to determine the illiquidity premium. Results of the study conclude that the current illiquidity premium being paid to the investors are substantially below the premium that we find using an options approach.
Keywords option, Illiquidity
Field Business Administration
Published In Volume 6, Issue 1, January-February 2024
Published On 2024-01-25
Cite This Pricing the Illiquidity Premium for Private Market Assets - Gaurav Barick - IJFMR Volume 6, Issue 1, January-February 2024. DOI 10.36948/ijfmr.2024.v06i01.11950
DOI https://doi.org/10.36948/ijfmr.2024.v06i01.11950
Short DOI https://doi.org/gtfzwx
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