The following statements compare a highly liquid asset against an (otherwise similar) illiquid asset. Which statement is most likely to be false?
A. It is possible to trade a larger quantity of the liquid asset without affecting the price.
B. The liquid asset has a smaller bid-ask spread.
C. The liquid asset has higher price volatility since it trades more often.
D. The liquid asset has higher trading volume.
Answer:C
A liquid asset has a smaller bid-ask spread, higher trading volume, less price impact from a large trade, but not necessarily higher volatility than an otherwise comparable illiquid asset.