Is Illiquidity a Good Proxy for Risk? : Can illiquidity have an effect on growth firms' expected return?

As previous researchers have discussed the paradigm of risk and return, this study also suggests illiquidity as a good proxy for risk. An illiquid asset, thus higher risk, should generate high return. As Amihud (2002) originally applies an illiquidity measure from daily return and turnover, this thesis elaborates on his average market illiquidity measure AILLIQ on assets of Nasdaq First North Growth Market. Over a five-year period returns are estimated using the CAPM together with the illiquidity proxy on Swedish growth assets. Results are in line with intuitive thoughts of a positive relationship between risk and return. The hypothesis of zero impact is rejected and concludes that illiquidity can have an impact on expected return.