Presidential Address: Liquidity and Price Discovery
This paper examines the implications of market microstructure for asset pricing. I argue that asset pricing ignores the central fact that asset prices evolve in markets. Markets provide liquidity and price discovery, and I argue that asset pricing models need to be recast in broader terms to incorporate the transactions costs of liquidity and the risks of price discovery. I argue that symmetric information-based asset pricing models do not work because they assume that the underlying problems of liquidity and price discovery have been solved. I develop an asymmetric information asset pricing model that incorporates these effects. Copyright (c) 2003 by the American Finance Association.
Year of publication: |
2003
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Authors: | O'Hara, Maureen |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 58.2003, 4, p. 1335-1354
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Publisher: |
American Finance Association - AFA |
Saved in:
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