THE SEASONAL BEHAVIOR OF THE LIQUIDITY PREMIUM IN ASSET PRICING

This paper empirically investigates the seasonal behavior of the liqui dity premium in asset pricing. The evidence suggests a strong seasonal component. In the 1961-1990 period, the liquidity premium is reliably positive only during the month of January. For the non-January months , one cannot detect a positive liquidity premium. The impact of the re lative bid-ask spreads on asset pricing in non-January months cannot b e reliably distinguished from zero. In contrast to Amihud and Mendelso n (1986), however, our evidence suggests that the size effect is signi ficant, even after controlling for spreads.