Practical analysis for investment professionals
05 June 2013

The Case for Liquidity as an Investment Style (Podcast)

We last talked with Roger Ibbotson, chairman and CIO of Zebra Capital Management, in late 2011, when John Bowman, CFA, interviewed him about his ongoing research on liquidity for our Take 15 video series. Ibbotson’s subsequent paper “Liquidity as an Investment Style” appears in the May/June 2013 issue of the Financial Analysts Journal, and Rodney Sullivan, CFA, recently chatted with him as part of our new series of FAJ author interviews.



Ibbotson says that he and his coauthors — Zhiwu Chen, Daniel Kim, and Wendy Hu — showed that liquidity meets William F. Sharpe’s four criteria for benchmark investment styles. They also constructed portfolios using each investment style (size, value/growth, momentum, and liquidity) and studied the returns. Ibbotson notes that “there was a gain from buying the stock that was less liquid; that was true for high-value stocks, it was true for growth stocks, it was true for high-momentum stocks, it was true for low-momentum stocks.”

Ibbotson says that buying less-liquid stocks “makes more sense than any of these other styles.” To hear all of the benefits he ascribes to liquidity as a style, as well as a more thorough discussion of his research and findings, listen to the complete interview above or download the MP3. CFA Institute members can access the full journal article on the CFA Publications website.

If you missed our first FAJ author interview, be sure to check it out for some insight into the role of gender in the sell-side analyst field.


Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
Pat Light

Pat Light is an assistant editor at CFA Institute. Before joining the CFA Institute editorial staff, he worked as a teacher. Light has a bachelor's degree in English from Duke University.

1 thought on “The Case for Liquidity as an Investment Style (Podcast)”

  1. Richard Dole says:

    This article is well worth reading. I find in valuation analysis, it is difficult to quantify the impact of liquidity on a given investment. This is particularly relevant for closely held investments.

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