Liquidity Premia and Transactions Costs
“We show that concerns over a potential liquidity crash, no matter how unlikely it is, can dramatically reduce investment in stock even when the current market is perfectly liquid and the expected excess return is high.”
AssetEquities
StrategyLiquidity premiummacro signals
TechniqueState-space modelmathematical derivation
ClaimExcess return
Also stated: Fundamentals, costs
Missing from abstract: benchmark, out-of-sample test, multiple testing, universe
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The paper's neighbourhoodLiquidity premium by year
FamilyLiquidity premium19Momentum and trend following289Factor investing240Machine learning return prediction15318 more · 983
AssetEquities15
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