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Table 2 Average normalized illiquidity, book-to-market portfolios. Ten portfolios are formed using book-to-market data at the end of April for each year in the 33-year period between 1968 through 2000 for all AMEX and NYSE stocks identified on CRSP, following the methodology detailed in Lakonishok et al. (1994). For each year for each stock in each portfolio, Amihud (2002)‘s illiquidity measure is estimated for each stock for which 100 trading observations are identified, as: \( {ILLIQ}_{iy}=\frac{1}{D_{iy}}\sum \limits_{t=1}^{Diy}\frac{\left|{R}_{iy d}\right|}{VOLD_{iy d}} \), where D iy is the numbers of days for which trading data is available during the given year for each stock i of year y; R iyd is the return for stock i on day d of year y, and VOLD iyd is dollar volume for stock i on day d of year y. This measure is then normalized using a methodology similar to Acharya and Pedersen (2005), as follows: NILLIQ iy  = min(0.25 + 0.30 ILLIQ iy CAPRATIO y , 30.00), where CAPRATIO y is the ratio of equally weighted average monthly market capitalization for year y to the equally weighted average monthly market capitalization for the year 1967. If monthly returns for a given stock disappears for a given stock during any month in a given post-portfolio formation year, then the NILLIQ iy value for the stock is the average of the NILLIQ iy value for the stock and the NILLIQ iy value for the corresponding market value group, where the weight given to each NILLIQ iy value in the averaging is based on the proportion of months for which the stock return is available during the given year. The average values across the 33 years in the sample of the annual normalized illiquidity are reported in this table for each of the five post-portfolio formation years. As well, the average annual normalized illiquidity is reported as well. “Glamour” and “Value” refer to the groups with the lowest and highest values of book-to-market, respectively

From: Value investing or investing in illiquidity? The profitability of contrarian investment strategies, revisited

 

Glamour

        

Value

 

BM1

BM2

BM3

BM4

BM5

BM6

BM7

BM8

BM9

BM10

Average NILLIQ, year 1

2.3882

1.1523

1.1793

1.2989

1.4233

1.5981

1.9833

2.6994

3.7825

5.4139

Average NILLIQ, year 2

2.3505

1.3134

1.3123

1.4704

1.5427

1.7334

2.1477

2.8024

4.0666

5.4116

Average NILLIQ, year 3

2.4248

1.4867

1.4259

1.5435

1.6282

1.8834

2.2900

2.8887

4.1540

5.3129

Average NILLIQ, year 4

2.4672

1.5527

1.4781

1.6050

1.6729

1.8696

2.2568

2.8918

4.1206

5.1171

Average NILLIQ, year 5

2.4921

1.6167

1.4583

1.6484

1.6716

1.8711

2.2359

2.7667

4.0694

4.7968

Average annual NILLIQ

2.4246

1.4244

1.3708

1.5132

1.5877

1.7911

2.1828

2.8098

4.0386

5.2105