TY - JOUR
T1 - Liquidity risk and asset pricing
AU - Li, Hongtao
AU - Novy-Marx, Robert
AU - Velikov, Mihail
N1 - Publisher Copyright:
© 2019 Hongtao Li, Robert Novy-Marx, and Mihail Velikov.
PY - 2019/12/17
Y1 - 2019/12/17
N2 - Pastor and Stambaugh’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 factor’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.
AB - Pastor and Stambaugh’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 factor’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.
UR - http://www.scopus.com/inward/record.url?scp=85072872753&partnerID=8YFLogxK
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U2 - 10.1561/104.00000076
DO - 10.1561/104.00000076
M3 - Article
AN - SCOPUS:85072872753
SN - 2164-5744
VL - 8
SP - 223
EP - 255
JO - Critical Finance Review
JF - Critical Finance Review
IS - 1-2
ER -