Has the US Stock Market Become More Vulnerable Over Time?

24 Pages Posted: 2 Nov 2012

See all articles by Avraham Kamara

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: May 13, 2009

Abstract

This paper demonstrates that the cross-sectional variation of systematic risk and systematic liquidity have increased over the period 1963-2008. Both have increased signi ficantly for large-cap firms, but declined signifi cantly for small-cap fi rms. Several implications for investment managers are discussed, such as the declining ability to diversify return volatilities and liquidity shocks by holding liquid, large-cap stocks. The evidence suggests that the vulnerability of the US equity market to unanticipated events has increased over the past few decades.

Keywords: Systematic risk, Systematic liquidity, Diversi

JEL Classification: G12, G14

Suggested Citation

Kamara, Avraham and Lou, Xiaoxia and Sadka, Ronnie, Has the US Stock Market Become More Vulnerable Over Time? (May 13, 2009). Available at SSRN: https://ssrn.com/abstract=2169395 or http://dx.doi.org/10.2139/ssrn.2169395

Avraham Kamara

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 (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

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