Journal of Financial and Quantitative Analysis Vol. 50 No. 1-2 2015
The Diminishing Liquidity Premium
open access
Abstract
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.
- DOI
- 10.1017/s0022109015000071
- Volume
- 50
- Issue
- 1-2
- Pages
- 197-229
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref