This paper examines the price differences between very liquid on-the-run U.S. Treasury securities and less liquid off-the-run securities over the on/off cycle. Comparing pairs of securities in time-series regressions allows us to disregard any fixed cross-sectional differences between securities. Also, since the liquidity of Treasury notes varies predictably over time, we can distinguish between current and future liquidity. We compare a variety of (microstructure-based) direct measures of liquidity to compare their effects on prices. We show that the liquidity premium depends primarily on the amount of remaining future liquidity.

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Active portfolios can be more concentrated or more diversified than the market portfolio. In the latter case, the result is likely to be a tilt toward equal weights, which has been shown to have a systematic impact on portfolio returns. To capture this tilt, we use the difference between returns on equal-weighted and value-weighted portfolios for the relevant universe; we call this difference Equal-Minus-Value, or EMV. Despite EMV's simplicity, its ability to explain mutual fund returns compares very favorably with that of the most popular performance evaluation factors. We therefore argue that EMV should be used in performance evaluation of broad market equity portfolios.