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http://hdl.handle.net/10419/43207
  
Title:The diminishing liquidity premium PDF Logo
Authors:Ben-Rephael, Azi
Kadan, Ohad
Wohl, Avi
Issue Date:2008
Series/Report no.:CFS Working Paper 2008/52
Abstract:Previous evidence suggests that less liquid stocks entail higher average returns. Using NYSE data, we present evidence that both the sensitivity of returns to liquidity and liquidity premia have significantly declined over the past four decades to levels that we cannot statistically distinguish from zero. Furthermore, the profitability of trading strategies based on buying illiquid stocks and selling illiquid stocks has declined over the past four decades, rendering such strategies virtually unprofitable. Our results are robust to several conventional liquidity measures related to volume. When using liquidity measure that is not related to volume, we find just weak evidence of a liquidity premium even in the early periods of our sample. The gradual introduction and proliferation of index funds and exchange traded funds is a possible explanation for these results.
Subjects:Liquidity
Illiquidity
Liquidity Premium
Stock Returns
JEL:G12
G14
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-62317
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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