Author: Azi Ben-RephaelPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
The Diminishing Liquidity Premium
Author: Azi Ben-RephaelPublisher:
ISBN:
Category :
Languages : en
Pages : 60
Book Description
Stock liquidity has improved over the recent four 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 four decades. In recent time periods 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.
The Diminishing Liquidity Premium
Author: Azi Ben-RephaelAn Estimate of the Liquidity Premium
Author: J. Huston McCullochPublisher:
ISBN:
Category : Interest
Languages : en
Pages : 138
Book Description
Liquidity Premium
Author: Gunnar HeinsohnThe Liquidity Premium and the Solidity Premium
Author: Susan WoodwardLiquidity Premium in the Presence of Stock Market Crises and Background Risk
Author: Sergey IsaenkoPublisher:
ISBN:
Category :
Languages : en
Pages : 27
Book Description
We analyze a portfolio optimization problem for a long-term investor in the presence of stock market crises. A crisis includes a crash of the stock market price, a sharp increase of its volatility and dramatic deterioration of liquidity. We model the stock market illiquidity by means of convex transaction costs that mimic the presence of an effective bid-ask spread that increases with the size of a trade. We find that the existence of stock market crises results in a significant liquidity premium. Furthermore, the presence of background risk has a negative impact on the liquidity premium.
The Liquidity Premium of Near-money Assets
Author: Stefan NagelPublisher:
ISBN:
Category : Economics
Languages : en
Pages : 48
Book Description
Treasury bills and other near-money assets provide owners with liquidity service benefits that are reflected in prices in the form of a liquidity premium. I relate time variation in this liquidity premium to changes in the opportunity cost of money: The liquidity service benefits of near-money assets are more valuable when short-term interest rates are high and hence the opportunity cost of holding money is high. Consistent with this prediction, the liquidity premium of T-bills and other near-money assets is strongly positively correlated with the level of short-term interest rates. Once short-term interest rates are controlled for, Treasury security supply variables lose their explanatory power for the liquidity premium. I argue that an analysis of scarcity and price of near-money assets is incomplete without taking into account the substitution relationship with money and its supply by the central bank. Payment of interest on reserves (IOR) could potentially reduce liquidity premia because IOR reduces the opportunity cost of at least one type of money (reserves). In the UK and Canada, however, the introduction of IOR did not shrink liquidity premia. Apparently, the reduction in banks' opportunity cost of money did not result in a broader fall in the opportunity costs of money for non-bank market participants.
(Il)liquidity Premium in Credit Markets
Author: Diogo PalharesPublisher:
ISBN:
Category :
Languages : en
Pages : 45
Book Description
Across multiple measures of “liquidity” and a variety of methods to control for correlated characteristics of more (less) liquid bonds, we find only limited evidence of a liquidity premium in the cross section of corporate bonds. Specifically, while illiquid bonds have slightly higher credit spreads and directionally higher average returns, portfolios that tilt toward (away from) less (more) liquid bonds exhibit considerably higher levels of volatility. Economically, the low Sharpe ratios of illiquidity-factor-mimicking portfolios are hard to justify for an investor. This is puzzling, as theory suggests investors should demand a risk premium for holding less-liquid assets.
Liquidity Premium and a Two-Factor Model
Author: Weimin LiuPublisher:
ISBN:
Category :
Languages : en
Pages : 53
Book Description
This paper examines the role of liquidity risk in explaining the cross-section of asset returns using a new measure of liquidity that captures its multi-dimensional nature. This new measure earns a robust liquidity premium that the CAPM and the Fama-French three-factor model cannot explain. I find that a two-factor (market and liquidity) model performs better in explaining the cross-section of stock returns than the CAPM and the Fama-French three-factor model. It not only describes the liquidity premium, but it also subsumes documented anomalies associated with size, book-to-market, cashflow-to-price, earnings-to-price, dividend yield, and long-term contrarian investment. The model also accounts for price momentum after taking into account transaction costs.
The Cyclical Behavior of the Term Structure of Interest Rates
Author: Reuben A. KesselPublisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 132
Book Description