RT Journal Article
SR Electronic
T1 Pricing of Corporate Liquidity: <em>Understanding Asset Pricing During Liquidity and Credit Crises</em>
JF The Journal of Investing
FD Institutional Investor Journals
SP 46
OP 60
DO 10.3905/joi.2015.24.3.046
VO 24
IS 3
A1 Xiaoli Wang
A1 Wei Simi
YR 2015
UL https://pm-research.com/content/24/3/46.abstract
AB The financial crisis of 2008 suggests that existing asset pricing models, which are derived under the assumption of investor rationality, might not be sufficient to explain stock performance during periods of market stress and liquidity crunch. In this article, we developed four measures of corporate liquidity risk factors to examine their dynamic impact on stock returns, and we found that corporate liquidity risk played a significant role in affecting stock returns, especially during periods of market stress or liquidity crunch. We believe our analysis contributes to the asset-pricing literature and provides significant insights to investors who wish to better understand the impact of corporate liquidity risk factors in a more time-sensitive way. In addition, our research on different factor loadings of corporate liquidity risk for stocks with different attributes will be of interest to investors: This research will help them better understand how corporate liquidity risk factor is priced in stock returns cross-sectionally and thus can help them to better position their investments, especially during periods of market stress.TOPICS: Security analysis and valuation, analysis of individual factors/risk premia