Many proxies of illiquidity have been used in the literature that relates illiquidity to asset prices. These proxies have been motivated from an empirical standpoint. In this study, we approach liquidity estimation from a theoretical perspective. Our method explicitly recognizes the analytic...

Low credit risk firms realize higher returns than high credit risk firms. This effect is puzzling because investors seem to pay a premium for bearing credit risk. This paper shows that the credit risk effect manifests itself due to the poor performance of low-rated stocks during periods of...

Many proxies of illiquidity have been used in the literature that relates illiquidity to asset prices. These proxies have been motivated from an empirical standpoint. In this study, we approach liquidity estimation from a theoretical perspective. Our method explicitly recognizes the analytic...

This paper shows that the puzzling negative cross-sectional relation between dispersion in analysts' earnings forecasts and future stock returns is a manifestation of financial distress, as proxied by credit rating downgrades. Focusing on a sample of firms rated by Samp;P, we show that the...

This paper studies cross-sectional variations in stock trading activity for a comprehensive sample of NYSE/AMEX and Nasdaq stocks over a period of thirty-six years. Our theoretical framework indicates that trading activity depends on the extent of liquidity trading, the mass of informed agents,...

This paper studies whether incorporating business cycle predictors is beneficial to a real time optimizing investor who must allocate funds across 3123 NYSE-AMEX stocks and the risk-free asset over the 1972-2003 period. Realized returns are positive when adjusted by the Fama-French and momentum...

Market efficiency, the timely incorporation of information into prices, remains a central and controversial issue in finance. The short-horizon predictability of returns from past order flows is an inverse indicator of efficiency. We analyze this predictability for NYSE stocks that traded every...

This paper documents a strong relationship between short-run reversals and stock return illiquidity, even after controlling for trading volume. The largest reversals and the potential contrarian trading strategy profits occur in the high turnover, low liquidity stocks, as the price pressures...

This paper establishes a robust link between momentum and credit rating. Momentum profitability is large and significant among low-grade firms, but it is nonexistent among high-grade firms. The momentum payoffs documented in the literature are generated by low-grade firms that account for less...

We study the joint time-series of daily liquidity in government bond and stock markets over the period 1991 to 1998. Innovations in liquidity are positively and significantly correlated across stock and bond markets. Further, order imbalances in the stock market impact bond and stock liquidity,...