The Diminishing Liquidity Premium

Azi Ben-Rephael, Ohad Kadan, Avi Wohl

Research output: Contribution to journalArticlepeer-review

65 Scopus citations


Stock liquidity has improved over the recent 4 decades. This improvement was accompanied by a dramatic increase in trading activity. The net effect on the liquidity premium is ambiguous. We show that the characteristic liquidity premium of U.S. stocks has significantly declined over the past 4 decades. In recent years, characteristic liquidity is significantly priced only for the smallest common stocks. This decline stems from an improvement in liquidity and from a lower sensitivity of expected returns to liquidity. By contrast, systematic liquidity has not been trending down and is still significantly priced primarily among NASDAQ stocks.

Original languageEnglish
Pages (from-to)197-229
Number of pages33
JournalJournal of Financial and Quantitative Analysis
Issue number1-2
StatePublished - 14 Jul 2015
Externally publishedYes

Bibliographical note

Publisher Copyright:
Copyright © Michael G. Foster School of Business 2015.


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