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| Author: | Liu, W. |
| Title: | A liquidity-augmented capital asset pricing model |
| Journal: | Journal of Financial Economics
2006 : DEC, VOL. 82:3, p. 631-671 |
| Index terms: | finance capital assets trading pricing liquidity models |
| Language: | eng |
| Abstract: | Based on a new measure of liquidity (here as: liq-ty.), this paper documents a significant liq-ty. premium robust to the CAPM and the Fama-French 3-factor model. It is shown that liq-ty. is an important source of priced risk. A 2-factor (market and liquidity) model well explains the cross-section of stock returns, describing the liq-ty. premium etc. Especially, the 2-factor model accounts for the book-to-market effect, which the Fama-French 3-factor model fails to explain. |
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