Liquidity Risk and Asset Pricing
Robert Novy-Marx and
Critical Finance Review, 2019, vol. 8, issue 1-2, 223-255
Pastor and Stambaughâ€™s (PS 2003) aggregate liquidity innovations can be closely replicated, as can their traded factor based on historically estimated liquidity betas, which performs even stronger out of sample. This factorâ€™s performance is highly sensitive to construction details, however, and exhibits significantly weaker performance when rebalanced at its natural monthly frequency, or when constructed using either more or less extreme sorts. Their predicted liquidity risk factor is more difficult to replicate, and difficult to interpret because characteristics chosen to predict liquidity risk introduce mechanical relations to other known anomalies. Contrary to the claims of PS, liquidity risk appears essentially unrelated to momentum.
Keywords: Asset pricing; Liquidity; Factor models; Momentum (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
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:now:jnlcfr:104.00000076
Access Statistics for this article
More articles in Critical Finance Review from now publishers
Bibliographic data for series maintained by Alet Heezemans ().