Stock Liquidity in Practice - How do Swedish practitioners define and measure liquidity in stock valuation? A contemporary study including the financial crisis.

Sammanfattning: The research regarding the liquidity aspect of stock valuation has been increasing considerably during the last decades. Numerous studies have examined the relationship between the liquidity level and risk, and the return regarding stock. This paper presents a qualitative, descriptive investigation about different Swedish market participants' practical view on liquidity. By using semi-structured interviews, the authors seek to explore how the market participants take the liquidity aspect into consideration when valuing stock, i.e. how they define and measure stock liquidity. Also, it is investigated whether there has been any change in the handling of liquidity in valuation, since the global financial crisis. Finally, the study also includes a compilation of the general valuation techniques used and the view concerning the small company discount. The descriptive findings suggest that the liquidity aspect is mainly defined as the average six or twelve month daily turnover volume. Also, the free float was mentioned by several practitioners. In valuation, it usually appeared either indirectly through multiples, or directly by a higher discount rate or as a discount on the final value. Further, it was found that there has not been any particular change in the valuation handling of liquidity since the global financial crisis, which may be connected to psychological reasons.