Yakov AmihudEdit
Yakov Amihud is an Israeli-American economist and a professor of finance at New York University's Stern School of Business. He is best known for introducing the concept of illiquidity into asset pricing and for developing the Amihud illiquidity ratio, a simple metric that captures the price impact of trades and the liquidity of financial markets. His work has helped establish liquidity as a fundamental driver of asset prices, influencing both academic research and practical portfolio management.
Amihud’s research centers on how trading frictions and market structure shape prices, liquidity, and risk. By linking trading costs and the depth of markets to expected returns, his work has provided a concrete framework for measuring liquidity risk in Asset pricing and related areas of finance. The ideas he helped popularize—namely, that liquidity risk is a priced risk factor and that price formation is closely tied to trading activity—have become central to how investors evaluate liquidity in equities and beyond to other asset classes Market microstructure Illiquidity.
Over the course of his career, Amihud has helped fuse theory and empirical work in finance. He is associated with the broad stream of research that treats market liquidity as essential to the functioning of financial markets, influencing both university curricula and practical risk-management practices in investment firms. His work on liquidity and price impact has been widely cited and has shaped how scholars and practitioners think about capital allocation, trading costs, and market resilience in the face of stress.
Career
Academic appointments
Amihud is a longtime professor of finance at Stern School of Business within New York University. His scholarship spans market microstructure, liquidity, and asset pricing, and he has contributed to the dialogue between academic research and industry practice on how trading frictions affect investment outcomes.
Key contributions to finance
- Development of the Amihud illiquidity ratio, a widely used measure of price impact per unit of trading activity that links liquidity to expected returns in asset pricing models Illiquidity.
- Expansion of liquidity research into various markets and asset classes, including work that informs our understanding of how liquidity risk is priced across time and across markets Asset pricing Market microstructure.
- Emphasis on practical implications for portfolio management and risk controls, illustrating how liquidity considerations influence trading costs, performance, and capital allocation.
Controversies and debates
Critiques of liquidity measures
Like any influential empirical framework, Amihud’s liquidity-centered approach has faced scrutiny. Some scholars question the universality of the Illiquidity ratio, noting potential sensitivity to data frequency, market microstructure, and sample selection. Critics argue that measured illiquidity may reflect short-run frictions or data artifacts rather than a persistent pricing risk, prompting calls for robustness checks and complementary measures in cross-sectional tests of asset returns Illiquidity Market microstructure.
Policy and ideological debates
Debates around liquidity research intersect with broader questions about financial regulation, market design, and the allocation of capital. Proponents of market-based approaches argue that clear liquidity signals and pricing of trading frictions help allocate capital efficiently and mitigate systemic risk, while critics contend that excessive emphasis on market mechanics can overlook distributional concerns or distort social outcomes. In discussions framed by these tensions, some critics labeled as advocating broader social or political goals may challenge the emphasis on liquidity risk as a primary driver of asset prices. Proponents of the liquidity-focused view respond by stressing that well-functioning, liquid markets are a prerequisite for broad economic growth, investor protection, and long-run wealth creation, and that transparent liquidity metrics support better decision-making for savers and institutions alike. Critics who dismiss these arguments as politically driven or impractical are often accused of overlooking the empirical link between liquidity, price formation, and efficient capital allocation.
Why some criticisms miss the point
From a market-oriented perspective, the core claim is that liquidity is a fundamental, observable risk that investors must price and manage. Detractors who focus on equity or social concerns may push for policies that, in the view of proponents, risk distorting incentives or reducing market efficiency. Supporters argue that discounting liquidity risk and understanding its pricing consequences helps protect investors, supports more accurate pricing, and ultimately fosters a healthier allocation of resources, even if public policy debates over regulation and distribution remain contentious.