Asset pricing with liquidity risk
By: Viral V. Acharya, Lasse Heje Pedersen.
Contributors: Pedersen, Lasse Heje.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10814; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10814.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Capital assets pricing model; Stocks -- Prices; Liquidity (Economics)
Description: "This paper solves explicitly an equilibrium asset pricing model with liquidity risk--the risk arising from unpredictable changes in liquidity over time.  In our 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 market liquidity.  In addition, the model shows how a negative shock to a security's liquidity, if it is persistent, results in low contemporaneous returns and high predicted future returns.  The model provides a simple, unified framework for understanding the various channels through which liquidity risk may affect asset prices.  Our empirical results shed light on the total and relative economic significance of these channels"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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