We merge the literature on downside return risk and liquidity risk and introduce the concept of extreme downside liquidity (EDL) risks. The cross-section of stock returns reflects a premium if a stock's return (liquidity) is lowest at the same time when the market liquidity (return) is lowest....

This study examines whether investors’ attitudes toward ambiguity can explain cross-sectional stock returns by investigating the relationship between future stock returns and option-implied volatilities as well as implied third moments. We find that investors’ attitudes toward different...