The Time Variation of Liquidity Risk in US Stock Markets
Michael Ludwig ()
Additional contact information
Michael Ludwig: University of Augsburg, FIM Research Center, Universitätsstraße 12, 86135 Augsburg
Credit and Capital Markets, 2018, vol. 51, issue 2, 205–225
The influence of liquidity costs and liquidity risk on asset returns has been proven by several empirical studies. This paper analyzes the conditional version of the liquidity-adjusted capital asset pricing model and shows that betas significantly vary over different economic regimes and that liquid portfolios provide diversification benefits compared with illiquid portfolios. The results support the effects of a flight-to-liquidity. The time variation of liquidity betas induces additional risk for investors, which has important implications for investment decisions and asset allocation.
Keywords: CAPM; liquidity risk; regime switching model; time variation; liquidity betas (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
References: Add references at CitEc
Citations Track citations by RSS feed
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kuk:journl:v:51:y:2018:i:2:p:205-225
Access Statistics for this article
More articles in Credit and Capital Markets from Credit and Capital Markets
Bibliographic data for series maintained by Credit and Capital Markets ().