The Diminishing Liquidity Premium

Azi Ben-Rephael; Ohad Kadan; Avi Wohl

doi:https://doi.org/10.1017/S0022109015000071

The Diminishing Liquidity Premium

Azi Ben-Rephael, Ohad Kadan, Avi Wohl

Coller School of Management

Tel Aviv University

Research output: Contribution to journal › Article › peer-review

Abstract

Stock liquidity has improved over the recent 4 decades. This improvement was accompanied by a dramatic increase in trading activity. The net effect on the liquidity premium is ambiguous. We show that the characteristic liquidity premium of U.S. stocks has significantly declined over the past 4 decades. In recent years, characteristic liquidity is significantly priced only for the smallest common stocks. This decline stems from an improvement in liquidity and from a lower sensitivity of expected returns to liquidity. By contrast, systematic liquidity has not been trending down and is still significantly priced primarily among NASDAQ stocks.

Original language	English
Pages (from-to)	197-229
Number of pages	33
Journal	Journal of Financial and Quantitative Analysis
Volume	50
Issue number	1-2
DOIs	https://doi.org/10.1017/S0022109015000071
State	Published - 14 Jul 2015

All Science Journal Classification (ASJC) codes

Accounting
Finance
Economics and Econometrics

Access to Document

https://doi.org/10.1017/S0022109015000071

Cite this

@article{add3b9ffb2e84ba4bec0325bff8ab4af,

title = "The Diminishing Liquidity Premium",

abstract = "Stock liquidity has improved over the recent 4 decades. This improvement was accompanied by a dramatic increase in trading activity. The net effect on the liquidity premium is ambiguous. We show that the characteristic liquidity premium of U.S. stocks has significantly declined over the past 4 decades. In recent years, characteristic liquidity is significantly priced only for the smallest common stocks. This decline stems from an improvement in liquidity and from a lower sensitivity of expected returns to liquidity. By contrast, systematic liquidity has not been trending down and is still significantly priced primarily among NASDAQ stocks.",

author = "Azi Ben-Rephael and Ohad Kadan and Avi Wohl",

note = "Publisher Copyright: Copyright {\textcopyright} Michael G. Foster School of Business 2015.",

year = "2015",

month = jul,

day = "14",

doi = "https://doi.org/10.1017/S0022109015000071",

language = "الإنجليزيّة",

volume = "50",

pages = "197--229",

journal = "Journal of Financial and Quantitative Analysis",

issn = "0022-1090",

publisher = "Cambridge University Press",

number = "1-2",

}

TY - JOUR

T1 - The Diminishing Liquidity Premium

AU - Ben-Rephael, Azi

AU - Kadan, Ohad

AU - Wohl, Avi

PY - 2015/7/14

Y1 - 2015/7/14

N2 - Stock liquidity has improved over the recent 4 decades. This improvement was accompanied by a dramatic increase in trading activity. The net effect on the liquidity premium is ambiguous. We show that the characteristic liquidity premium of U.S. stocks has significantly declined over the past 4 decades. In recent years, characteristic liquidity is significantly priced only for the smallest common stocks. This decline stems from an improvement in liquidity and from a lower sensitivity of expected returns to liquidity. By contrast, systematic liquidity has not been trending down and is still significantly priced primarily among NASDAQ stocks.

AB - Stock liquidity has improved over the recent 4 decades. This improvement was accompanied by a dramatic increase in trading activity. The net effect on the liquidity premium is ambiguous. We show that the characteristic liquidity premium of U.S. stocks has significantly declined over the past 4 decades. In recent years, characteristic liquidity is significantly priced only for the smallest common stocks. This decline stems from an improvement in liquidity and from a lower sensitivity of expected returns to liquidity. By contrast, systematic liquidity has not been trending down and is still significantly priced primarily among NASDAQ stocks.

UR - http://www.scopus.com/inward/record.url?scp=84983140580&partnerID=8YFLogxK

U2 - https://doi.org/10.1017/S0022109015000071

DO - https://doi.org/10.1017/S0022109015000071

M3 - مقالة

SN - 0022-1090

VL - 50

SP - 197

EP - 229

JO - Journal of Financial and Quantitative Analysis

JF - Journal of Financial and Quantitative Analysis

IS - 1-2

ER -

The Diminishing Liquidity Premium

Abstract

All Science Journal Classification (ASJC) codes

Access to Document

Other files and links

Fingerprint

Cite this