The consumption of households with liquid financial assets responds much more to transitory income shocks than the permanent-income hypothesis predicts. That is, middle class households with assets act as if they face liquidity constraints. This paper addresses this puzzling observation with a model of impatient households that face a large recurring expenditure. In spite of impatience, they sa...

Considerable anecdotal evidence suggests that the effects of liquidity shocks spread quickly throughout the financial sector. However, few studies have focused on the dynamics of liquidity across real-estate markets. This paper examines the liquidity spill-over impact across four markets linked by a common fundamental factor : the stock market, the derivative (Credit Default Swap (CDS)) market,...

This paper presents a new data infrastructure for measuring economic activity. The infrastructure records transactions and account balances, yielding measurements with scope and accuracy that have little precedent in economics. The data are drawn from a diverse population that overrepresents males and younger adults but contains large numbers of underrepresented groups. The data infrastructure ...

We show that idiosyncratic liquidity risk is positively priced in the cross-section of stock returns. Our measure of idiosyncratic liquidity volatility is based on a ”market” model for stock liquidity. Idiosyncratic volatility of liquidity is priced in the presence of systematic liquidity risk: the covariance of stock returns with aggregate liquidity, the covariance of stock liquidity with aggr...

We explore a new dimension of fund managers' timing ability by examining whether they can time market liquidity through adjusting their portfolios'market exposure as aggregate liquidity conditions change. Using a large sample of hedge funds, we find strong evidence of liquidity timing. A bootstrap analysis suggests that top-ranked liquidity timers cannot be attributed to pure luck. In out-of-sa...

Article history: Received 19 July 2012 Received in revised form 21 November 2013 Accepted 28 November 2013 Available online 7 December 2013 We investigate the pricing implication of liquidity risks in the liquidity-adjusted capital asset pricing model of Acharya and Pedersen (2005), using multiple liquidity measures and their principal component. While we find that the empirical results are sen...

This paper is an empirical investigation of the excess comovement of industry indexes in the U.S. stock market between January 8, 1973 and December 31, 2001. We define excess comovement as the correlation between two assets beyond what can be explained by fundamental factors. In our analysis, the fundamental factors are sector groupings and the three Fama-French factors. We then estimate excess...

We document a positive relation between the volatility of liquidity and expected returns. Our measure of liquidity is based on Amihud (2002) and its volatility is measured using daily data. We show that the volatility of liquidity effect is different from previously documented liquidity risks: the covariance of stock returns with aggregate liquidity, the covariance of stock liquidity with aggre...

We present an empirical study of the pricing effect of liquidity in the credit default swaps (CDS) market. We construct liquidity proxies to capture various facets of CDS liquidity including adverse selection, search frictions, and inventory costs. We show that the liquidity effect on CDS spreads is significant with an estimated liquidity premium on par with those of Treasury bonds and corporat...

entral banks provide liquidity in various contexts to promote the stability and efficient functioning of the financial system. While the exact institutional aspects of liquidity provision vary among central banks, some basic features seem to be generic. First, the provision of central bank liquidity in normal periods is restricted to a small subset of possible agents who are encouraged to compe...