TY - JOUR
T1 - Trade-time measures of liquidity
AU - Barardehi, Yashar H.
AU - Bernhardt, Dan
AU - Davies, Ryan J.
N1 - We are grateful for comments received from Adam Clark-Joseph, Michael Goldstein, Peter Haslag (discussant), Tim Johnson, Laurie Krigman, Stefan Negal, Thomas Ruchti, Ronnie Sadka, James Upson (discussant), and Mao Ye and seminar participants at the 2016 Midwest Finance Annual Meeting, the 2016 Financial Management Annual Meeting, University of Hong Kong, Hong Kong University of Science and Technology, the University of Illinois, Ohio University, and the Boston Area Finance Symposium. We also thank the editor, Andrew Karolyi, and anonymous referees. Yashar Barardehi acknowledges support from Paul Boltz Fellowship. Ryan Davies acknowledges support from the Babson Faculty Research Fund. Any errors are our own. Send correspondence to Yashar Barardehi, Beckman Hall, Chapman University, Orange, CA 92866; telephone: +1(217)819-6478. E-mail: [email protected].
PY - 2019/1/1
Y1 - 2019/1/1
N2 - Dramatic microstructure changes in equity markets have made standard liquidity measures less accurate proxies for trading costs. We develop trade-time liquidity measures that reflect per-dollar price impacts of fixed-dollar volumes. Our measures better capture institutional trading costs and better explain the cross-section of returns than do standard measures, especially in recent years. Despite improvements in measures of market quality, expected trading costs have explanatory power for the cross-section of expected returns: we obtain monthly liquidity premium estimates of 5.3 bp for expected returns and 2.4 bp for risk-adjusted returns. Estimated premiums rise after the financial crisis and remain high thereafter.
AB - Dramatic microstructure changes in equity markets have made standard liquidity measures less accurate proxies for trading costs. We develop trade-time liquidity measures that reflect per-dollar price impacts of fixed-dollar volumes. Our measures better capture institutional trading costs and better explain the cross-section of returns than do standard measures, especially in recent years. Despite improvements in measures of market quality, expected trading costs have explanatory power for the cross-section of expected returns: we obtain monthly liquidity premium estimates of 5.3 bp for expected returns and 2.4 bp for risk-adjusted returns. Estimated premiums rise after the financial crisis and remain high thereafter.
UR - https://www.scopus.com/pages/publications/85066948022
UR - https://www.scopus.com/inward/citedby.url?scp=85066948022&partnerID=8YFLogxK
U2 - 10.1093/rfs/hhy012
DO - 10.1093/rfs/hhy012
M3 - Article
AN - SCOPUS:85066948022
SN - 0893-9454
VL - 32
SP - 129
EP - 179
JO - Review of Financial Studies
JF - Review of Financial Studies
IS - 1
ER -