LAPM: A Liquidity‐Based Asset Pricing Model

Bengt Holmstrom and Jean Tirole

Journal of Finance, 2001, vol. 56, issue 5, 1837-1867

Abstract: 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 consumer's intertemporal marginal rate of substitution. This paper develops an alternative approach to asset pricing based on corporations' desire to hoard liquidity. Our corporate finance approach suggests new determinants of asset prices such as the distribution of wealth within the corporate sector and between the corporate sector and the consumers. Also, leverage ratios, capital adequacy requirements, and the composition of savings affect the corporate demand for liquid assets and, thereby, interest rates.

Date: 2001
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https://doi.org/10.1111/0022-1082.00391

Related works:
Working Paper: LAPM: A Liquidity Based Asset Pricing Model (1998)
Working Paper: LAPM: A Liquidity-based Asset Pricing Model (1998)
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