Explanation:
B is correct. Expected returns of illiquid assets can be overstated due to measurement biases such as infrequent trading, survivorship, and reporting biases.
A is incorrect. Corporate bonds that trade less frequently or have larger bid–ask spreads have higher returns.
C is incorrect. US Treasuries do exhibit illiquidity risk premiums between on-the-run and off-the-run bonds.
D is incorrect. Hedge funds which do place restrictions on investor withdrawals have shown higher returns.
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A
Corporate bonds that trade less frequently or have larger bid-ask spreads have lower returns than more liquid corporate bonds.
B
Expected returns of illiquid assets can be overstated due to measurement biases.
C
US Treasury instruments are the only assets that do not exhibit illiquidity risk premium.
D
Hedge funds that do not place restrictions on withdrawals exhibit higher returns.
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