 The world price of liquidity riskKuan-Hui Lee Journal of Financial Economics, 2011, vol. 99, issue 1, 136-161 Abstract: This paper empirically tests the liquidity-adjusted capital asset pricing model of Acharya and Pedersen (2005) on a global level. Consistent with the model, I find evidence that liquidity risks are priced independently of market risk in international financial markets. That is, a security's required rate of return depends on the covariance of its own liquidity with aggregate local market liquidity, as well as the covariance of its own liquidity with local and global market returns. I also show that the US market is an important driving force of global liquidity risk. Furthermore, I find that the pricing of liquidity risk varies across countries according to geographic, economic, and political environments. The findings show that the systematic dimension of liquidity provides implications for international portfolio diversification. Keywords: Asset; pricing; International; finance; Liquidity; Liquidity; risk; Liquidity-adjusted; capital; asset; pricing; model; Commonality; in; liquidity; Market; integration; Market; segmentation; Mildly; segmented; market; Zero; return; Emerging; market; Developed; market (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:99:y:2011:i:1:p:136-161 Access Statistics for this article Journal of Financial Economics is currently edited by G. William Schwert More articles in Journal of Financial Economics from Elsevier |
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