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Pricing the Commonality Across Alternative Measures of Liquidity

Robert A. Korajczyk
Northwestern University - Kellogg School of Management

Ronnie Sadka
Boston College - Department of Finance and Department of Finance


September 13, 2007


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.

Keywords: Liquidity, Risk Premium

JEL Classifications: G1, G13

Working Paper Series

Date posted: May 11, 2006 ; Last revised: September 18, 2007

Suggested Citation

Korajczyk, Robert A. and Sadka, Ronnie, Pricing the Commonality Across Alternative Measures of Liquidity (September 13, 2007). Available at SSRN: http://ssrn.com/abstract=900363


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Contact Information

Ronnie Sadka (Contact Author)
Boston College - Department of Finance and Department of Finance ( email )
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
Robert A. Korajczyk
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8336 (Phone)
847-491-5719 (Fax)
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References: 40
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