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):
Mays Business School, Texas A&M University, College Station
Affiliate Professor, EDHEC Business School
Lundquist College of Business, University of Oregon, Eugene
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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