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Friday, July 31, 2020 | History

2 edition of A liquidity based asset pricing model found in the catalog.

A liquidity based asset pricing model

by Bengt HolmstrmМІ

  • 283 Want to read
  • 16 Currently reading

Published by Massachusetts Institute of Technology in Cambridge, Mass .
Written in English


Edition Notes

StatementBengt R. Holmstrom, Jean Tirole
SeriesWorking paper / Dept. of Economics -- no. 98-08, Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 98-08.
ContributionsTirole, Jean, Massachusetts Institute of Technology. Dept. of Economics
The Physical Object
Pagination34, [1] p. :
Number of Pages34
ID Numbers
Open LibraryOL24639495M
OCLC/WorldCa40905152

  Second, as discussed below, we include the portfolio duration as a control variable in our asset pricing equation and find that this has little effect on the estimated liquidity and risk premia. 2. Empirical Results Empirical approach. To estimate the asset pricing model in Equation we use a Fama-MacBeth approach. We choose this approach Cited by: This book presents the theory and evidence on the effect of market liquidity and liquidity risk on asset prices and on overall securities market performance. Illiquidity means incurring a high transaction cost, which includes a large price impact when trading and facing a long time to unload a large by:

  – Understanding the pricing of real estate equities is a central objective of real estate research. This paper aims to investigate the impact of liquidity on European real estate equity returns, after accounting for well-documented systematic risk factors., – Based on risk factors derived from general equity data, the authors extend the Fama-French time-series Cited by: 7. adjusted capital asset pricing model, a security’s required return depends on its expected liquidity risk complements the existing theoretical literature on asset pricing with constant trading frictions (see, for instance, Amihud and Mendelson, ; of the relative importance of liquidity level and the liquidity risks depend on the.

The liquidity-adjusted CAPM pricing model therefore states that, the higher an asset's market-liquidity risk, the higher its required return. [3] A common method for estimating the upper bound for a security illiquidity discount is by using a Lookback option, where the premia is equal to the difference between the maximum value of a security. Liquidity crises and asset prices. Many asset prices drop significantly during liquidity crises. Hence, asset prices are subject to liquidity risk and risk-averse investors naturally require higher expected return as compensation for this risk. The liquidity-adjusted CAPM pricing model therefore states that, the higher an asset's market-liquidity risk, the higher its required return.


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A liquidity based asset pricing model by Bengt HolmstrmМІ Download PDF EPUB FB2

The evidence that liquidity is an important state variable for asset pricing (Pastor and Stambaugh, ) and the limited power of the Fama–French three-factor model to describe the cross-section of asset returns (see, for example, Daniel and Titman, ) motivate me in the second part of this study to develop a liquidity-augmented asset Cited by: This paper solves explicitly a simple equilibrium model with liquidity risk.

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 the market return and by: LAPM: A Liquidity-based Asset Pricing Model Bengt Holmstrom, Jean Tirole.

NBER Working Paper No. Issued in August NBER Program(s):Asset Pricing Program, Corporate Finance Program The intertemporal CAPM predicts that an asset's price is equal to the expectation of the product of the asset's payoff and a representative consum substitution.

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 the market.

Asset Pricing with Liquidity Risk Viral V. Acharyay and Lasse Heje Pedersenz First Version: J Current Version: Septem Abstract This paper solves explicitly an equilibrium asset pricing model with liq-uidity risk Š the risk arising from unpredictable changes in.

The liquidity-based portfolio strategy does not work with Capital Asset Pricing Model, Fama-French Three Factor Model and Fama-French Five Factor Model on Karachi Stock Exchange. View Show abstract. Theory-Based Illiquidity and Asset Pricing Many proxies of illiquidity have been used in the literature that relates illiquidity to asset prices.

These proxies have been motivated from an empirical standpoint. In this study, we approach liquidity estimation from a theoretical perspective. A liquidity based asset pricing model book method ex-Cited by:   Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price.

COVID Resources. Reliable information about the coronavirus (COVID) is available from the World Health Organization (current situation, international travel).Numerous and frequently-updated resource results are available from this ’s WebJunction has pulled together information and resources to assist library staff as they consider how to handle.

The intertemporal CAPM predicts that an asset's price is equal to the expectation of the product of the asset's payoff and a representative consum substitution. This paper develops an alternative approach to asset pricing based on industrial and financial corporations' desire to hoard liquidity to fulfill future cash needs.

Our corporate finance a determinants of asset prices such as the. This book is about the pricing of liquidity in securities markets.

The authors present theory and evidence on the positive effect of liquidity on asset prices, why liquidity varies over time, and how liquidity risk affects prices. The book then explains how liquidity crises create downward price and liquidity by:   Liquidity is how easily an asset or security can be bought or sold in the market, and converted to cash.

There are two different types of liquidity Author: David R. Harper. Asset Pricing with Liquidity Risk Viral V. Acharya, Lasse Heje Pedersen.

NBER Working Paper No. Issued in October NBER Program(s):Asset Pricing This paper solves explicitly an equilibrium asset pricing model with liquidity risk -- the risk arising from unpredictable changes in liquidity over time. In this stimulating new book, the authors bridge the gap between academic and practical experience by advancing the liquidity theory of asset prices.

For many investment managers, liquidity is a crucial subject to which academics have paid too little attention. The book demonstrates that knowledge of liquidity is vital for understanding by: 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. Theintertemporalconsumption-basedassetpricingmodel(e.g.,RubinsteinLucasBreedenHarrison-KrepsCox et al.Hansen-Jagannathan ) predictsthat an asset's current price is equal to. In this section, we first relate the theory of liquidity and asset pricing to the standard theory of asset pricing in frictionless markets.

We then show how liquidity is priced in the most basic model of liquidity, where securities have exogenous trading costs and identical, risk-neutral investors have exogenous trading horizons (Section ).

Second, we propose and compare two alternative implications of liquidity in asset pricing. More precisely, we adapt the liquidity-adjusted capital asset pricing model (CAPM) proposed by Acharya and Pedersen () for the Portuguese case and suggest two alternative specifications of a liquidity-adjusted CAPM, to separate and compare the effects of liquidity.

Get this from a library. LAPM: A Liquidity-based Asset Pricing Model. [Bengt Holmstrom; Jean Tirole] -- The intertemporal CAPM predicts that an asset's price is equal to the expectation of the product of the asset's payoff and a representative consum substitution. This paper develops an.

The aim of this paper is to examine the role of liquidity in asset pricing in a tiny market, such as the Portuguese. The unique setting of the Lisbon Stock Exchange with regards to changes in classification from an emerging to a developed stock market, allows an original answer to whether changes in the development of the market affect the role of liquidity in asset pricing.,The Cited by: 4.

This paper presents a simple theoretical model that helps explain how asset prices are affected by liquidity risk — the inability to find buyers or sellers of securities at will — and commonality in liquidity.

This liquidity-adjusted capital asset pricing model (CAPM) provides a unified framework for understanding the various channels through which liquidity risk may .Theintertemporalconsumption-basedassetpricingmodel(e.g.,Ru- binstein, LucasBreedenHarrison-KrepsCox et al.Hansen-Jagannathan )predictsthat an asset'scurrentprice is equal to the.

Our model is in line with the margin-based capital asset pricing model (Ashcraft et al. ): borrowing-constrained investors are willing to pay higher prices for stocks with larger market exposures, and this effect is stronger for stocks with higher margin requirements.

Therefore, a market-neutral portfolio of longing low-beta stocks and Cited by: