NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Asset Pricing with Liquidity Risk

Viral V. Acharya, Lasse Heje Pedersen

NBER Working Paper No. 10814
Issued in October 2004
NBER Program(s):   AP

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.

download in pdf format
   (408 K)

email paper

This paper is available as PDF (408 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10814

Published: Acharya, Viral V. and Lasse Heje Pedersen. "Asset Pricing With Liquidity Risk," Journal of Financial Economics, 2005, v77(2,Aug), 375-410.

Users who downloaded this paper also downloaded these:
Pastor and Stambaugh w8462 Liquidity Risk and Expected Stock Returns
Vayanos and Wang w15215 Liquidity and Asset Prices: A Unified Framework
Holmstrom and Tirole w6673 LAPM: A Liquidity-based Asset Pricing Model
Acharya, Amihud, and Bharath w16394 Liquidity Risk of Corporate Bond Returns: A Conditional Approach
Garleanu and Pedersen w12887 Liquidity and Risk Management
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us