The Time-Varying Liquidity Risk of Value and Growth Stocks

This paper studies the liquidity exposures of value and growth stocks over business cycles. In the worst times, value stocks have higher liquidity betas than in the best times, while the opposite holds for growth stocks. Small value stocks have higher liquidity exposures than small growth stocks in the worst times. Small growth stocks have higher liquidity exposures than small value stocks in the best times. The results are consistent with a flight-to-quality explanation for the countercyclical nature of the value premium.