Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209879 
Year of Publication: 
2007
Series/Report no.: 
Working Paper No. 2007/3
Publisher: 
Norges Bank, Oslo
Abstract: 
Is the effect of liquidity risk on asset prices sensitive to our choice of liquidity proxy? In addressing this fundamental question, we achieve two main results. First, when we estimate factor models on a broad range of liquidity measures we uncover a profound distinction between trade and order based liquidity. Second, although the order based factor provides a better signal of available liquidity, we find that only the factor related to information risk explains expected returns both in a theoretical liquidity-CAPM model and in a linear pricing framework. Our results suggest a surprising fragility of liquidity-based asset pricing.
Subjects: 
CAPM
liquidity risk
liquidity factor
order based measure
trade based measure
information risk
JEL: 
G12
G14
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-387-4
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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