Liquidity Level or Liquidity Risk? Evidence from the Financial Crisis

Posted: 11 Jun 2011  

Xiaoxia Lou

University of Delaware - Alfred Lerner College of Business and Economics

Ronnie Sadka

Boston College - Carroll School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: June 9, 2011

Abstract

Although generally considered safe assets, liquid stocks underperformed illiquid stocks during the financial crisis of 2008–2009. The performance of stocks during the crisis can be better explained by their historical liquidity betas (risk) than by their historical liquidity levels. Stocks with different historical liquidity levels did not experience different returns after controlling for liquidity risk. The authors’ findings highlight the importance of accounting for both liquidity level and liquidity risk in risk management applications.

Keywords: equity investments, portfolio management, equity portfolio management strategies, risk management, portfolio risk management, risk management strategies

Suggested Citation

Lou, Xiaoxia and Sadka, Ronnie, Liquidity Level or Liquidity Risk? Evidence from the Financial Crisis (June 9, 2011). Financial Analysts Journal, Vol. 67, No. 3, 2011. Available at SSRN: https://ssrn.com/abstract=1861385

Xiaoxia Lou (Contact Author)

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

Paper statistics

Abstract Views
889