We rely on upstarts to keep us entertained, to keep markets turning over and to keep top dogs on their game for fear of replacement.
Companies such as Tesla (US:TSLA) have used 'challenger status' to reach valuations out of reach for any established competitor or any standard valuation metric. But challenger status as an investment style is a different ballgame. The authors of the 2018 paper ‘Liquidity as an Investment Style’, Roger Ibbotson and Daniel Kim of Zebra Capital Management, want liquidity to sit alongside size, value, growth and momentum as its own strategy.
For London investors, low liquidity might more be a signifier of a company’s junior status or the local stock exchange’s failings than any indicator of quality. But Ibbotson and Kim see high liquidity as such a valuable trait that investors are often willing to overpay for it, thus diminishing its potential return. It should be noted here that it is easier to overpay (or pay at all) for higher-liquidity shares – but let’s keep it academic for the moment.