Liquidity risk and the beta premium
journal contribution
posted on 2021-10-08, 13:03 authored by Cynthia GongCynthia Gong, Di Luo, Huainan ZhaoHuainan ZhaoAs opposed to the “low beta low risk” convention, we show that low beta stocks are illiquid
and exposed to high liquidity risk. After adjusting for liquidity risk, low beta stocks no
longer outperform high beta stocks. Although investors who “bet against beta” earn a
significant beta premium under the Fama–French three- or five-factor models, this strategy
fails to generate any significant returns when liquidity risk is accounted for. Our
work helps understand the beta premium from a new liquidity-risk perspective, and draws
useful implications for both fund and corporate managers.
Funding
National Natural Science Foundation of China. Grant Number: 71991473, 71671076
History
School
- Business and Economics
Department
- Economics
Published in
Journal of Financial ResearchVolume
44Issue
4Pages
789-814Publisher
WileyVersion
- AM (Accepted Manuscript)
Rights holder
© The Southern Finance Association and the Southwestern Finance AssociationPublisher statement
This is the peer reviewed version of the following article: Gong, C., Luo, D. and Zhao, H., (2021). Liquidity Risk and the Beta Premium. Journal of Financial Research, doi: 10.1111/jfir.12263, which has been published in final form at https://doi.org/10.1111/jfir.12263. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibitedAcceptance date
2021-07-21Publication date
2021-10-04Copyright date
2021ISSN
0270-2592eISSN
1475-6803Publisher version
Language
- en
Depositor
Dr Cynthia Gong. Deposit date: 8 October 2021Usage metrics
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