We examine the relationship between stock extreme illiquidity and the implied cost of capital for firms from 45 countries. We document robust evidence that firms whose stocks have a greater potential for extreme illiquidity realizations suffer from higher cost of capital. A one standard...

Using the liquidity-adjusted CAPM (LCAPM) model, we estimate three time-varying illiquidity risks based on the DCC-GARCH(1,1) for 49,351 common stocks of which 20,678 trade in 60 emerging markets and the remaining 28,673 in 23 developed markets. The reported evidence from the cross-sectional...