TY - JOUR
T1 - Pricing the commonality across alternative measures of liquidity
AU - Korajczyk, Robert A.
AU - Sadka, Ronnie
N1 - Funding Information:
We thank Yakov Amihud, Tarun Chordia, Gregory Connor, Ruslan Goyenko, Joel Hasbrouck, Soeren Hvidkjaer, Roni Israelov, Ravi Jagannathan, Avraham Kamara, Pete Kyle, Ananth Madhavan, Tribhuvan Puri, Gil Sadka, Bill Schwert (the editor), Avanidhar Subrahmanyam, Masahiro Watanabe, seminar participants at Vanderbilt, Washington University, and the CRSP Forum, and, particularly, the referee. We thank Morgan Stanley & Co. for financial support of this research through the Morgan Stanley Equity Market Microstructure Research Grant program. Korajczyk also wishes to acknowledge the financial support of the Zell Center for Risk Research and the Jerome Kenney Fund.
PY - 2008/1
Y1 - 2008/1
N2 - We estimate latent factor models of liquidity, aggregated across various liquidity measures. Shocks to assets' liquidity have a common component across measures which accounts for most of the explained variation in individual liquidity measures. We find that across-measure systematic liquidity is a priced factor while within-measure systematic liquidity does not exhibit additional pricing information. Controlling for across-measure systematic liquidity risk, there is some evidence that liquidity, as a characteristic of assets, is priced in the cross-section. Our results are robust to the inclusion of other equity characteristics and risk factors, such as market capitalization, book-to-market, and momentum.
AB - We estimate latent factor models of liquidity, aggregated across various liquidity measures. Shocks to assets' liquidity have a common component across measures which accounts for most of the explained variation in individual liquidity measures. We find that across-measure systematic liquidity is a priced factor while within-measure systematic liquidity does not exhibit additional pricing information. Controlling for across-measure systematic liquidity risk, there is some evidence that liquidity, as a characteristic of assets, is priced in the cross-section. Our results are robust to the inclusion of other equity characteristics and risk factors, such as market capitalization, book-to-market, and momentum.
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U2 - 10.1016/j.jfineco.2006.12.003
DO - 10.1016/j.jfineco.2006.12.003
M3 - Article
AN - SCOPUS:36849005472
SN - 0304-405X
VL - 87
SP - 45
EP - 72
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 1
ER -