The Divergence of Liquidity Commonality in the Cross-Section of Stocks

Download or read book The Divergence of Liquidity Commonality in the Cross-Section of Stocks written by Avraham Kamara and published by . This book was released on 2018 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper demonstrates that the cross-sectional variation of liquidity commonality has increased over the period 1963-2005. The divergence of systematic liquidity can be explained by patterns in institutional ownership over the sample period. We document that our findings are associated with similar patterns in systematic risk, and have significant implications for expected returns. Our analysis also indicates that the ability to diversify return volatility and liquidity shocks by holding large-cap stocks has declined. The evidence, therefore, suggests that the fragility of the US equity market to unanticipated events has increased over the past few decades.