Liquidity Risk After 20 Years
The Critical Finance Review commissioned Li, Novy-Marx, and Velikov (2017) and Pontiff and Singla (2019) to replicate the results in Pástor and Stambaugh (2003). Both studies successfully replicate our market-wide liquidity measure and find similar estimates of the liquidity risk premium. In the sample period after our study, the liquidity risk premium estimates are even larger, and the liquidity measure displays sharp drops during the 2008 financial crisis. We respond to both replication studies and offer some related thoughts, such as when to use our traded versus non-traded liquidity factors and how to improve the precision of liquidity beta estimates.
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Copy CitationLubos Pastor and Robert F. Stambaugh, "Liquidity Risk After 20 Years," NBER Working Paper 25774 (2019), https://doi.org/10.3386/w25774.
Published Versions
Lubos Pastor & Robert F. Stambaugh, 2019. "Liquidity Risk After 20 Years," Critical Finance Review, vol 8(1-2), pages 277-299.