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| Author: | Acharya, V.V. Pedersen, L.H. |
| Title: | Asset pricing with liquidity risk |
| Journal: | Journal of Financial Economics
2005 : AUG, VOL. 77:2, p. 375-410 |
| Index terms: | capital asset pricing liquidity risk transaction costs |
| Language: | eng |
| Abstract: | This article solves explicitly a simple equilibrium model with liquidity risk. In a liquidity-adjusted capital asset pricing model, a security's required return depends on its expected liquidity as well as on the covariances of its own return and liquidity with market return and liquidity. Additionally, a persistent negative shock to a security's liquidity results in low contemporaneous returns and high predicted future returns. |
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