We develop a theoretical model of equity returns to demonstrate that average run lengths [as in Fama (1965) ] are negatively related to common measures of liquidity such as trading volume and trade price-impact. This relationship holds irrespective of the observation frequency in the computation of run lengths. Thus, security liquidity may be detected by an examination of the corresponding run length signature. We test the model using daily equity return data for all stocks over the period

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... 2005 and find that run lengths are related to standard liquidity measures such as turnover, bid-ask spreads, and price-impact [e.g. Amihud (2002) ]. We construct a market-wide illiquidity factor based on run lengths and find that it is priced using standard asset-pricing tests.