Liquidity and Asset Returns: A Literature Survey
Lahore School of Economics - Centre for Research in Economics and Business
December 3, 2009
Asset pricing is a dominant theme in financial economics and various propositions on the subject assumes a frictionless environment with selective determinants of risk factors that are priced. However, in reality financial markets exhibit frictions of transaction costs, information asymmetry, heterogeneous beliefs etc that has contributed towards weak empirical performance of traditional asset pricing models. This paper reviews existing research in financial economics on the relevance of liquidity as a valid risk factor. The survey covers various empirical measures discussed in financial literature along with empirical evidences on contribution of liquidity in asset pricing.
Number of Pages in PDF File: 18
Keywords: Asset Pricing, Liquidty
JEL Classification: G10, G12working papers series
Date posted: December 5, 2009
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