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Liquidity skewness premium

Giho Jeong, Jangkoo Kang and Kyung Yoon Kwon

The North American Journal of Economics and Finance, 2018, vol. 46, issue C, 130-150

Abstract: Risk-averse investors may dislike decrease of liquidity rather than increase of liquidity, and thus there can be asymmetric preference in variation of liquidity. In addition, investors are likely to avoid extreme illiquidity. This paper examines whether the skewness of an individual firm’s liquidity capturing asymmetric distribution of liquidity and extreme illiquidity is priced in the US stock market. Using the skewness of the daily price impact, we find that it is positively priced, and this positive relation is significant up to eight months after controlling for other effects. Moreover, we find our results remain significant with the skewness of alternative liquidity measures, i.e., dollar-volume, and turnover.

Keywords: Liquidity premium; Liquidity skewness; Extreme liquidity risk; Asset pricing (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:ecofin:v:46:y:2018:i:c:p:130-150