Affiliation:
1. PBC School of Finance, Tsinghua University
2. Faculty of Business and Economics, The University of Melbourne
Abstract
AbstractWe construct a traded funding liquidity measure from stock returns. Guided by a model, we extract the measure as the return spread between two beta-neutral portfolios constructed using stocks with high and low margins, to control for their sensitivity to the aggregate funding shocks. Our measure of funding liquidity is correlated with other funding liquidity proxies. It delivers a positive risk premium that cannot be explained by existing risk factors. A model augmented by our funding liquidity measure has superior pricing performance for various portfolios. Despite evident comovement, this measure contains additional information that is not subsumed by market liquidity.Received March 29, 2017; accepted August 8, 2018 by Editor Wayne Ferson.
Publisher
Oxford University Press (OUP)
Subject
Economics and Econometrics,Finance
Cited by
18 articles.
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