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Has the U.S. Stock Market Become More Vulnerable Over Time?

Posted: 18 Feb 2010  

Avraham Kamara

University of Washington - Michael G. Foster School of Business

Xiaoxia Lou

University of Delaware - Alfred Lerner College of Business and Economics

Ronnie Sadka

Boston College - Carroll School of Management

Date Written: February 16, 2010

Abstract

This study demonstrates that the cross-sectional variation of systematic risk and systematic liquidity has increased from 1963 to 2008. Both have increased significantly for large-capitalization companies but have declined significantly for small-cap companies. These findings have several implications for investment managers, including the declining ability to diversify return volatilities and liquidity shocks by holding liquid, large-cap stocks. The findings suggest that the vulnerability of the U.S. equity market to unanticipated events has increased over the past few decades.

Keywords: Equity Investments, Investment Industry, Historical Trends, Portfolio Management, Portfolio Construction, Rebalancing, and Implementation, Risk Measurement and Management, Equity Portfolios

Suggested Citation

Kamara, Avraham and Lou, Xiaoxia and Sadka, Ronnie, Has the U.S. Stock Market Become More Vulnerable Over Time? (February 16, 2010). Financial Analysts Journal, Vol. 66, No. 1, 2010. Available at SSRN: https://ssrn.com/abstract=1553825

Avraham Kamara (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States
206-543-0652 (Phone)
206-221-6856 (Fax)

Xiaoxia Lou

University of Delaware - Alfred Lerner College of Business and Economics ( email )

419 Purnell Hall
Newark, DE 19716
United States

Ronnie Sadka

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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