With respect to trading costs, liquidity is least likely to impact the:
- stock price.
- bid–ask spreads.
- brokerage commissions.
Please briefly explain why you feel this question should be reported.
Please briefly explain why you feel this answer should be reported.
Please briefly explain why you feel this user should be reported.
If a stock is less liquid, its stock price would be lower then what would otherwise have been – reason being the Required Rate of Return will be scaled up due to illiquidity premium.
Obviously, the lower the liquidity, the higher the bid-ask spread.
Brokerage commission is usually a fixed percentage of the value of the stocks traded – hence, it is not affected by liquidity.