Title: | Asset Pricing with Liquidity Risk |
Authors: | Acharya, Viral V. Pedersenz, Lasse Heje |
Issue Date: | 17-Jul-2003 |
Series/Report no.: | FIN-03-044 |
Abstract: | This paper studies equilibrium asset pricing with liquidity risk | the risk arising from unpredictable changes in liquidity over time. It is shown that a security’s required return depends on its expected illiquidity and on the covariances of its own return and illiquidity with market return and market illiquidity. This gives rise to a liquidity- adjusted capital asset pricing model. Further, if a security’s liquidity is persistent, a shock to its illiquidity results in low contemporaneous returns and high predicted future returns. Empirical evidence based on cross-sectional tests is consistent with liquidity risk being priced. |
URI: | http://hdl.handle.net/2451/27289 |
Appears in Collections: | Finance Working Papers |
Files in This Item:
File | Description | Size | Format | |
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wpa03044.pdf | 416.3 kB | Adobe PDF | View/Open |
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