Style Investing and Commonality in Liquidity

In this paper, we examine whether a stock's liquidity systematically co-moves with the liquidity of other stocks in the same style. We sort stocks into styles along widely-used size and growth dimensions and show that style-related commonality in liquidity is significant, even after controlling for the stock's liquidity co-movements with the rest of the market. Style-related commonality in liquidity is more pronounced in the recent period, and dominates liquidity co-movement with the rest of the market. Further, style-related commonality in liquidity is stronger for stocks with larger exposure to style investing, especially during periods, in which style-level fund outflows are the highest.