Liquidity should be given equal standing with size, value/growth, and momentum as an investment style. As measured by stock turnover, liquidity is an economically significant indicator of long-run returns. The returns of liquidity are sufficiently different from those of the other styles that it is not merely a substitute. Finally, a stock’s liquidity is relatively stable over time, with changes in liquidity associated with changes in valuation.

Author Information

Roger G. Ibbotson is professor in the practice of finance at the Yale School of Management, New Haven, Connecticut, and chairman and CIO of Zebra Capital Management, LLC, Milford, Connecticut.

Zhiwu Chen is professor of finance at the Yale School of Management, New Haven, Connecticut.

Daniel Y.-J. Kim is research director at Zebra Capital Management, LLC, Milford, Connecticut.

Wendy Y. Hu is senior quantitative researcher at Permal Asset Management, Inc., New York City.

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