{"id":40890408,"date":"2024-02-10T14:17:33","date_gmt":"2024-02-10T08:47:33","guid":{"rendered":"https:\/\/stockviz.biz\/index.php\/?p=40890408"},"modified":"2024-02-10T14:17:34","modified_gmt":"2024-02-10T08:47:34","slug":"market-cap-deciles-and-illiquidity","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2024\/02\/10\/market-cap-deciles-and-illiquidity\/","title":{"rendered":"Market-cap Deciles and Illiquidity"},"content":{"rendered":"\n<p>Our <a rel=\"noreferrer noopener\" href=\"https:\/\/stockviz.biz\/2024\/01\/10\/market-cap-classification-and-illiquidity\/\" target=\"_blank\">previous post<\/a> used AMFI&#8217;s classification of stocks by market-cap to analyze liquidity dynamics. What if we broke down the universe of stocks into their market-cap deciles and then applied the same illiquidity metric to them?<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/mcap-class\/illiquidity-mkt-cap.decile.median.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>If you look at the full sample, median liquidity tracks market-cap. <\/p>\n\n\n\n<p>Mid\/small caps have an embedded illiquidity premium. While index\/mutual funds are obligated to honor their NAVs on redemption, there is no guarantee that direct equity investors can exit without taking a direct hit. Liquidity flees during market stress. <\/p>\n\n\n\n<p>During bull markets, the taps are open. December 2017 was the absolute zenith of the mid\/small cap mania. Liquidity was ample.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/mcap-class\/illiquidity-mkt-cap.decile.2017-11-30.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>A month later, the hangover began. Erstwhile small-cap momentum stocks would hit their lower-circuits within a few seconds of the open. The market-clearing price for some of them were a cool 40%-50% away from where they finished 2017. It was weeks of watching the portfolio slowly bleed away. <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/mcap-class\/illiquidity-mkt-cap.decile.2018-01-25.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>All this to say, understanding liquidity dynamics is as important as understanding the fundamental and technical aspects of the stocks you own.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Our previous post used AMFI&#8217;s classification of stocks by market-cap to analyze liquidity dynamics. What if we broke down the universe of stocks into their market-cap deciles and then applied the same illiquidity metric to them? If you look at the full sample, median liquidity tracks market-cap. Mid\/small caps have an embedded illiquidity premium. While &hellip; <\/p>\n","protected":false},"author":2,"featured_media":2106273,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[2761],"class_list":["post-40890408","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-quant","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40890408","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=40890408"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40890408\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2106273"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=40890408"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=40890408"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=40890408"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}