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Journal Article

How Much Can Marketability Affect Security Values?

Francis A. Longstaff
The Journal of Finance
Vol. 50, No. 5 (Dec., 1995), pp. 1767-1774
Published by: Wiley for the American Finance Association
DOI: 10.2307/2329335
Stable URL: http://www.jstor.org/stable/2329335
Page Count: 8
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
How Much Can Marketability Affect Security Values?
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Abstract

How marketability affects security prices is one of the most important issues in finance. We derive a simple analytical upper bound on the value of marketability using option-pricing theory. We show that discounts for lack of marketability can potentially be large even when the illiquidity period is very short. This analysis also provides a benchmark for assessing the potential costs of exchange rules and regulatory requirements restricting the ability of investors to trade when desired. Furthermore, these results provide new insights into the relation between discounts for lack of marketability and the length of the marketability restriction.

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