Liquidity skewness premium

Giho Jeong, Jangkoo Kang, Kyung Yoon Kwon

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Abstract

Risk-averse investors may dislike decrease of liquidity rather than increase of liquidity, and thus there can be asymmetric preference in variation of liquidity. In addition, investors are likely to avoid extreme illiquidity. This paper examines whether the skewness of an individual firm’s liquidity capturing asymmetric distribution of liquidity and extreme illiquidity is priced in the US stock market. Using the skewness of the daily price impact, we find that it is positively priced, and this positive relation is significant up to eight months after controlling for other effects. Moreover, we find our results remain significant with the skewness of alternative liquidity measures, i.e., dollar-volume, and turnover.
Original languageEnglish
Pages (from-to)130-150
Number of pages21
JournalNorth American Journal of Economics and Finance
Volume46
Early online date7 Sep 2018
DOIs
Publication statusPublished - 30 Nov 2018

Keywords

  • liquidity premium
  • liquidity skewness
  • extreme liquidity risk
  • asset pricing

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