Pricing the Commonality Across Alternative Measures of Liquidity, Journal of Financial Economics
There are many alternative measures of assets' liquidity. For many of these measures, previous research shows that there is commonality in liquidity across assets. These various measures may, themselves, be driven by common factors. This might be due to the fact that they measure some common aspect of liquidity or because they measure different, but correlated, dimensions of liquidity. We estimate latent factor models of liquidity aggregated across a variety of measures. We find that shocks to assets' liquidity have a common component across measures. We also find that across-measure systematic liquidity is a priced factor. Controlling for across-measure systematic liquidity risk, there is mixed evidence about the pricing of liquidity as a characteristic of assets. The pricing of this global systematic liquidity factor is robust to Fama-French factors as well as asset liquidity, size, and book-to-market equity characteristics.
Robert Korajczyk, Ronnie Sadka
Korajczyk, Robert, and Ronnie Sadka. 2008. Pricing the Commonality Across Alternative Measures of Liquidity. Journal of Financial Economics. 87(1): 45-72.LINK