Critical Finance Review > Vol 8 > Issue 1-2

Liquidity Risk After 20 Years

Luboš Pástor, University of Chicago Booth School of Business, USA, lubos.pastor@chicagobooth.edu , Robert F. Stambaugh, Wharton School of the University of Pennsylvania, USA, stambaugh@wharton.upenn.edu
 
Suggested Citation
Luboš Pástor and Robert F. Stambaugh (2019), "Liquidity Risk After 20 Years", Critical Finance Review: Vol. 8: No. 1-2, pp 277-299. http://dx.doi.org/10.1561/104.00000074

Publication Date: 17 Dec 2019
© 2019 Luboš Pástor and Robert F. Stambaugh
 
Subjects
 
Keywords
JEL code: G12
LiquidityLiquidity riskLiquidity factorLiquidity betaReplication
 

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In this article:
1. Introduction 
2. Replication Results 
3. How to Use the Liquidity Factors 
4. Asymmetric Liquidity Shocks: Implications 
5. Conclusion 
References 

Abstract

The Critical Finance Review commissioned Li et al. (2019) 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.

DOI:10.1561/104.00000074