Definition for : Liquidity premium

Among factors used in determining Risk, the criteria by which liquidity can be measured (size, Free float, transaction volumes, Bid-ask spread) are often statistically significant. In other words, liquidity often appears to be one of the factors determining the required Return on a Security. Liquidity Premium due to Free float, transaction volumes, Bid-ask spread should be separated from the so-called ‘Size premium'.

(See Chapter 19 The required rate of return of the Vernimmen)

To know more about it, look at what we have already written on this subject