Illiquidity is well-known to be a significant determinant of stock and bond returns. We report on illiquidity premia in the equity options market. An increase in option illiquidity decreases the current option price and implies higher expected option returns. This effect is statistically and...

Investment practice and academic literature suggest a great degree of interaction between the world’s stock markets and most liquid and safe assets, such as U.S. Treasuries. Using data from 46 markets and a 30-year time period, we examine the impact of “flight-to-liquidity” events on...

We propose that fund performance can be predicted by its R-super-2, obtained from a regression of its returns on a multifactor benchmark model. Lower R-super-2 indicates greater selectivity, and it significantly predicts better performance. Stock funds sorted into lowest-quintile lagged...

Previous studies of Treasury market illiquidity span short time periods and focus on particular maturities. In contrast, we study the time series of illiquidity for different maturities over an extended period of time. We also compare time-series determinants of on-the-run and off-the-run...

We propose that fund performance can be predicted by its R2, obtained from a regression of its returns on a multi-factor benchmark model. Lower R2 indicates greater selectivity and it significantly predicts better performance. Stock funds sorted into lowest-quintile lagged R2 and...

Previous studies of Treasury market illiquidity span short time-periods and focus on particular maturities. In contrast, we study the joint time-series of illiquidity for different maturities over an extended time sample. We also compare time series determinants of on-the-run and off-the-run...

The paper tests the liquidity linkage between the stock and Treasury bond markets and its implications for asset pricing. We find that liquidity has a cross-market effect, which we attribute to trading activity across markets. We show that stock returns contain not only an illiquidity premium of...