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Liquidity Risk and Expected Stock Returns Author info | Abstract | Publisher info | Download info | Related research | Statistics Pastor, Lubos
Stambaugh, Robert F.
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This study investigates whether marketwide liquidity is a state variable important for asset pricing. We find that expected stock returns are related cross-sectionally to the sensitivities of returns to fluctuations in aggregate liquidity. Our monthly liquidity measure, an average of individual-stock measures estimated with daily data, relies on the principle that order flow induces greater return reversals when liquidity is lower. From 1966 through 1999, the average return on stocks with high sensitivities to liquidity exceeds that for stocks with low sensitivities by 7.5 percent annually, adjusted for exposures to the market return as well as size, value, and momentum factors. Furthermore, a liquidity risk factor accounts for half of the profits to a momentum strategy over the same 34-year period.
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Article provided by University of Chicago Press in its journal Journal of Political Economy .
Volume (Year): 111 (2003)
Issue (Month): 3 (June)
Pages: 642-685
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Handle: RePEc:ucp:jpolec:v:111:y:2003:i:3:p:642-685Contact details of provider: Postal: The University of Chicago Press, Journals Division, P.O. Box 37005 Chicago, IL 60637 Fax: (773) 753-0811 Email: Web page: http://www.journals.uchicago.edu/JPE/home.html
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Paper Lubos Pastor & Robert F. Stambaugh, 2001.
"Liquidity Risk and Expected Stock Returns ,"
NBER Working Papers
8462, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) Luboš Pástor & Robert F. Stambaugh, .
"Liquidity Risk and Expected Stock Returns ,"
CRSP working papers
531, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
[Downloadable!] Pástor, Lubos & Stambaugh, Robert F, 2002.
"Liquidity Risk and Expected Stock Returns ,"
CEPR Discussion Papers
3494, C.E.P.R. Discussion Papers.
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