The Effects of the Illiquidity Premium on the Return of Securities and the Importance for Eurasia
Dr. Serdar KUZU

Abstract
This study investigates the illiquidity premium, which has major impacts on Eurasia Economics and its term structure. In this study, the effects of the term structure of the illiquidity premium on government and corporate bonds and “the return of securities – illiquidity premium – expectation theory relationship” are investigated through various parameters and formulations. Consequently, the study draws upon the study of Kempf, Korn and Uhrig-Homburg which is conducted in 2009 and aims to investigate relations between German public sector’s bonds and private sector’s bonds. It is found that illiquidity premium varies in short, medium and long terms depending upon different factors and the curve that connects illiquidity premiums with different terms is a U shaped curve. Studies that use traditional methods in asset pricing evaluate the illiquidity premium as a systematic risk criterion. However, illiquidity is a risk factor that should be investigated alone instead of being investigated together with all of the risk factors. Financial market makers aim to make arrangements that remove the problems arising from the level of liquidity, in other words increase the level of liquidity, and contribute to the formation of efficient price. Further studies in this field will be very important in the development process of corporate bonds market with the decrease of interest rates in international markets and the issue of new corporate bonds in developing countries recently.

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