Jan

14

… the cross-sectional variation of liquidity commonality has increased over the period 1963-2005. In particular, the sensitivity of large-cap firms' liquidity to market liquidity has increased, while that of small-cap firms has declined. This increased polarization of systematic liquidity can be explained by patterns in institutional ownership over the sample period. The analysis also indicates that the ability to diversify aggregate liquidity shocks by holding large-cap stocks has declined. The evidence, therefore, suggests that the fragility of the U.S. equity market to unanticipated liquidity events has increased over the past few decades. [Read more here]


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