Pricing the commonality across alternative measures of liquidity

Robert A. Korajczyk, Ronnie Sadka*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

236 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)45-72
Number of pages28
JournalJournal of Financial Economics
Volume87
Issue number1
DOIs
StatePublished - Jan 2008

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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