The Liquidity Style: Finding Bargains by Seeking Less Popular Stocks

by Roger Ibbotson

Roger Ibbotson is chairman and CIO of Zebra Capital Management and a professor at the Yale School of Management. We spoke about his studies on the relationship of liquidity to returns. A copy of a recent paper he co-authored on the subject, “Liquidity as an Investment Style,” can be downloaded at

—Charles Rotblut, CFA

Charles Rotblut (CR): I’d like to discuss your studies on liquidity as an investment style. Can you explain what liquidity is in terms of stocks and shares trading?

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Roger Ibbotson is chairman and CIO of Zebra Capital Management and a professor at the Yale School of Management.


Jonathan Kahn from Indiana posted about 1 year ago:

Your discussion is interesting, but I am not certain what types of companies you are referring to. Can you provide some examples of what might be consider large cap liquid stocks versus less liquid or illiquid, and do the same for mid or microcap groups? Thanks.

Prem Jindal from Pennsylvania posted about 1 year ago:

Iwonder if Dr. Cloonen, shadow stocks fall within catagory of low liquidity/ microcap stocks and that why these are performing good.
Thanks and also can you please provide the forthcoming article on " liquidity as an invesment style.

Patrick Shanahan from Kentucky posted about 1 year ago:

Does Professor Ibbotson have a newsletter or advisory blog with recommendations?

Brad Rogers from Virginia posted about 1 year ago:

Are there any ETF's that use this strategy? it sounds promising.

Mike Ginn from California posted about 1 year ago:

It looks like (from Figure 1) that this effect is only significant from 2000 to 2005. If true why is this, and does it make sense to use an investment strategy which has only really added a lot of value in 5 of the last 32 years?

Frederick Joffe from Kentucky posted about 1 year ago:

Where does one find tables on liquidity or turnover for individual stocks?

D. Albert from Virginia posted 11 months ago:

Perhaps I missed it, but I did not see where the professor addressed the issue of attrition. Small cap companies go out of business at a far greater rate than mid & large cap. Without accounting for rates of attrition, the findings would appear to be less credible.

Charles Rotblut from Illinois posted 11 months ago:


In his paper, Roger wrote, "Second, a stock must have available information on trading volume and monthly total returns, earnings, number of shares outstanding, and stock price, for all 12 months of the selection year." So, the aspect of attrition was factored into the results.

Plus, note that the liquidity premium applies to both mid-cap and large-cap stocks as well.


George from Massachusetts posted 12 days ago:

The paper has an interesting viewpoint. However, I was unable to verify the theory using the mutual fund AZSPX that is mentioned in the paper. In fact, the returns of AZSPX (from inception)and SPY are very much the same, the standard deviation is lower for SPY and the expenses on SPY is significantly lower, 0.1% versus 1.37%.
Mr Rotblut, it would be helpful to verify the data on the funds mentioned?. If your data agrees with mine, it would be interesting to get Prof Ibbotson's reply.
(The data I used was the Adjusted Close from Yahoo finance)

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