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This paper studies whether stock returns' sensitivities to aggregate liquidity fluctuations and the pricing of liquidity risk vary over time. We find that liquidity betas vary across two distinct states: one with high liquidity betas and the other with low betas. The high liquidity-beta state is short lived and characterized by heavy trade, high volatility, and a wide cross-sectional dispersion in liquidity betas. It also delivers a disproportionately large liquidity risk premium, amounting to more than twice the value premium. Our results are consistent with a model of liquidity risk in which investors face uncertainty about their trading counterparties' preferences
Note:
In: The Review of Financial Studies, Vol. 21, Issue 6, pp. 2449-2486, 2008
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Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 2008 erstellt
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