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Cited by 820

The DOI matches its Crossref record; 122 of the 122 references it cites were found in a registry or an index.

Liquidity and Asset Prices

Open access
Amihud, Yakov, Mendelson, Haim, Pedersen, Lasse Heje·2005·Foundations and Trends® in Finance
DOI 10.1561/0500000003
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Abstract

We review the theories on how liquidity affects the required returns of capital assets and the empirical studies that test these theories. The theory predicts that both the level of liquidity and liquidity risk are priced, and empirical studies find the effects of liquidity on asset prices to be statistically significant and economically important, controlling for traditional risk measures and asset characteristics. Liquidity-based asset pricing empirically helps explain (1) the cross-section of stock returns, (2) how a reduction in stock liquidity result in a reduction in stock prices and an increase in expected stock returns, (3) the yield differential between on- and off-the-run Treasuries, (4) the yield spreads on corporate bonds, (5) the returns on hedge funds, (6) the valuation of closed-end funds, and (7) the low price of certain hard-to-trade securities relative to more liquid counterparts with identical cash flows, such as restricted stocks or illiquid derivatives. Liquidity can thus play a role in resolving a number of asset pricing puzzles such as the small-firm effect, the equity premium puzzle, and the risk-free rate puzzle.

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Metadata

Authors
Amihud, Y., Mendelson, H., & Pedersen, L. H.
Venue
Foundations and Trends® in Finance
Publisher
Emerald
Published
2005
Volume
1
Issue
4
Pages
269-364
ISSN
  • 1567-2395 (ISSN-L)
  • 1567-2409
DOI
10.1561/0500000003
OpenAlex
W2172160388
Cited by
820
References
122
FWCI
55.63
Type
journal article
Language
en
Open access
green

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