Turnover: Liquidity or Uncertainty?

  title={Turnover: Liquidity or Uncertainty?},
  author={Alexander Barinov},
  journal={Management Science},
The paper shows that turnover proxies for firm-specific uncertainty, not liquidity. I provide a new explanation of why high turnover firms have low expected returns. The explanation is aggregate volatility risk: high uncertainty firms, which usually have high turnover, beat the CAPM when aggregate volatility increases. Firmspecific uncertainty reduces risk through real options. Real options become less sensitive to the underlying asset value as firm-specific uncertainty goes up. Hence, real… CONTINUE READING