Systematic Liquidity Risk Premia

Glenn Boyle () and Sanghyun Hong ()
Additional contact information
Sanghyun Hong: University of Canterbury, https://www.canterbury.ac.nz

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: This paper examines the β4 liquidity risk premium documented in Acharya and Pedersen (2005). We decompose this premium into two components: the covariation of liquidity costs with (i) market dividend growth shocks and (ii) shocks to the variance of market returns. In 1963-2017 US stock market data, the former is approximately three times larger than the latter. Liquidity volatility is primarily incorporated in stock prices via its common variation with business, rather than financial, shocks.

Keywords: Liquidity Risk; Asset Pricing (search for similar items in EconPapers)
JEL-codes: G00 G12 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2020-08-01
New Economics Papers: this item is included in nep-fmk, nep-ore and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repec.canterbury.ac.nz/cbt/econwp/2015.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:20/15

Access Statistics for this paper

More papers in Working Papers in Economics from University of Canterbury, Department of Economics and Finance Private Bag 4800, Christchurch, New Zealand. Contact information at EDIRC.
Bibliographic data for series maintained by Albert Yee ().