Liquidity Risk after 20 Years

Pastor, Lubos; Stambaugh, Robert F.

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Liquidity Risk after 20 Years

NBER Working Paper No. w25774

23 Pages Posted: 30 Apr 2019 Last revised: 5 Jun 2022

See all articles by Lubos Pastor

Lubos Pastor

University of Chicago - Booth School of Business

Robert F. Stambaugh

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

There are 3 versions of this paper

Date Written: April 2019

Abstract

The Critical Finance Review commissioned Li, Novy-Marx, and Velikov (2017) and Pontiff and Singla (2019) to replicate the results in Pástor and Stambaugh (2003). Both studies successfully replicate our market-wide liquidity measure and find similar estimates of the liquidity risk premium. In the sample period after our study, the liquidity risk premium estimates are even larger, and the liquidity measure displays sharp drops during the 2008 financial crisis. We respond to both replication studies and offer some related thoughts, such as when to use our traded versus non-traded liquidity factors and how to improve the precision of liquidity beta estimates.

Suggested Citation: Suggested Citation

Pastor, Lubos and Stambaugh, Robert F., Liquidity Risk after 20 Years (April 2019). NBER Working Paper No. w25774, Available at SSRN: https://ssrn.com/abstract=3379454