Pricing the Commonality Across Alternative Measures of Liquidity

41 Pages Posted: 11 May 2006  

Multiple version iconThere are 2 versions of this paper

Date Written: 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 Classification: G1, G13

Suggested Citation

Korajczyk, Robert A. and Sadka, Ronnie, Pricing the Commonality Across Alternative Measures of Liquidity (September 13, 2007). Available at SSRN: https://ssrn.com/abstract=900363 or http://dx.doi.org/10.2139/ssrn.900363

Robert A. Korajczyk

Northwestern University - Kellogg School of Management ( email )

Kellogg School of Management
2211 Campus Drive, Room 4357
Evanston, IL 60208
United States
847-491-8336 (Phone)
847-491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/korajczyk_robert.aspx#research

Ronnie Sadka (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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