Citation

Discussion Paper Details

Please find the details for DP3494 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Liquidity Risk and Expected Stock Returns

Author(s): Lubos Pástor and Robert F. Stambaugh

Publication Date: August 2002

Keyword(s): asset pricing, expected returns and liquidity risk

Programme Area(s): Financial Economics

Abstract: This study investigates whether market-wide 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. Over a 34-year period, the average return on stocks with high sensitivities to liquidity exceeds that for stocks with low sensitivities by 7.5% annually, adjusted for exposures to the market return as well as size, value, and momentum factors.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3494

Bibliographic Reference

Pástor, L and Stambaugh, R. 2002. 'Liquidity Risk and Expected Stock Returns'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3494