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The Diminishing Liquidity Premium

Journal of financial and quantitative analysis, 2015-04, Vol.50 (1-2), p.197-229 [Peer Reviewed Journal]

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Title:
The Diminishing Liquidity Premium
Author: Ben-Rephael, Azi ; Kadan, Ohad ; Wohl, Avi
Subjects: Ambiguity ; Arithmetic mean ; Capital market ; Common stock ; Economic analysis ; Expected returns ; Financial analysis ; Financial portfolios ; Liquidity ; Liquidity premiums ; Nasdaq Composite Index ; Penny stocks ; Quantitative analysis ; Risk premiums ; Securities trading ; Stock exchange ; Stock exchanges ; Stock prices ; Stocks ; Studies ; Transaction costs ; U.S.A
Is Part Of: Journal of financial and quantitative analysis, 2015-04, Vol.50 (1-2), p.197-229
Description: Stock liquidity has improved over the recent 4 decades. This improvement was accompanied by a dramatic increase in trading activity. The net effect on the liquidity premium is ambiguous. We show that the characteristic liquidity premium of U.S. stocks has significantly declined over the past 4 decades. In recent years, characteristic liquidity is significantly priced only for the smallest common stocks. This decline stems from an improvement in liquidity and from a lower sensitivity of expected returns to liquidity. By contrast, systematic liquidity has not been trending down and is still significantly priced primarily among NASDAQ stocks.
Publisher: New York, USA: Cambridge University Press
Language: English
Identifier: ISSN: 0022-1090
EISSN: 1756-6916
DOI: 10.1017/S0022109015000071
CODEN: JFQAAC
Source: ProQuest Central

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