The Time-Varying Liquidity Risk of Value and Growth Stocks

We study the liquidity exposures of value and growth stocks over business cycles.

Author(s):

Ferhat Akbas

Mays Business School, Texas A&M University, College Station

Ekkehart Boehmer

Affiliate Professor, EDHEC Business School

Egemen Genc

Lundquist College of Business, University of Oregon, Eugene

Ralitsa Petkova

Mays Business School, Texas A&M University, College Station

In the worst times, value stocks have higher liquidity betas than in the best times, while the opposite holds for growth stocks. Small value stocks have higher liquidity exposures than small growth stocks in the worst times. Small growth stocks have higher liquidity exposures than small value stocks in the best times. Our results are consistent with a flight-to-quality explanation for the countercyclical nature of the value premium. Exposure to time-varying liquidity risk captures 35% of the smallstock value premium and 100% of the large-stock value premium.

Type: Working paper
Date: le 08/04/2011
Research Cluster : Finance

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