This paper demonstrates that the systematic liquidity-risk exposures of mutual funds can predict their performance in the cross-section. The results show that funds that signi…cantly load on liquidity risk subsequently outperform low-loading funds by about 6% annually over the period . The liquidity-risk premium however explains only a small fraction of this outperformance, suggesting that the liquidity-risk exposure of a fund is correlated with its manager's ability to generate abnormal performance. Finally, the liquidity-risk exposure e¤ect in mutual funds can also account for a large part of several other stylized facts such as return persistence, fund size, and smart money.

This paper investigates the relation between media coverage and offering yield spreads using a comprehensive dataset of 5,338 industrial bonds issued from 1990 to 2011. We find that media coverage is negatively associated with firms’ cost of debt. This association is robust to controlling for standard yield determinants, different model specifications, and endogeneity. We identify 4 economic channels through which media coverage influences the cost of debt: Information asymmetry, governance, liquidity, and default risk. Importantly, media coverage has an independent influence beyond the effects of these economic mechanisms and is not a proxy for other firm attributes.

We provide the first systematic evidence on the link between long-short anomaly portfolio returns-a cornerstone of the cross-sectional literature-and the timeseries predictability of the aggregate market excess return. Using 100 representative anomalies from the literature, we employ a variety of shrinkage techniques (including machine learning, forecast combination, and dimension reduction) to efficiently extract predictive signals in a high-dimensional setting. We find that longshort anomaly portfolio returns evince statistically and economically significant outof-sample predictive ability for the market excess return. The predictive ability of anomaly portfolio returns appears to stem from asymmetric limits of arbitrage and overpricing correction persistence. STOCK RETURN PREDICTABILITY IS A fundamental topic in finance. Two major-and voluminous-lines of research focus on this subject. The first examines whether firm characteristics can predict the cross-sectional dispersion in stock returns. These studies identify numerous equity market anomalies (e.g., Fama and French (2015), Harvey, Liu, and Zhu (2016), Pontiff (2016), Hou, Xue, andZhang (2020)). The second line of research investigates the time-series predictability of the aggregate market excess return based on a variety of economic and financial variables, such as valuation ratios, interest rates, and inflation (e.g., Nelson (1976), Campbell (1987, Fama and French

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The liquidity risk exposure of mutual funds represents their propensity for taking risk, but can also signify skill, if skillful managers' ability to outperform increases with market liquidity. Consistently, we document an annual liquiditybeta performance spread of 3.3% to 4% in the cross-section of mutual funds. Only a small portion of this spread is explained by risk premia. Instead, a large part is driven by the ability of high-liquidity-beta funds to outperform, either through holding underpriced assets or making informed trades, during periods of improved market liquidity. The …ndings highlight the multiple e¤ects of liquidity risk on active asset management.