JANG, BONG-GYU; KOO, HYENG KEUN; LIU, HONG; … - In: Journal of Finance 62 (2007) 5, pp. 2329-2366
Standard literature concludes that transaction costs only have a "second-order" effect on liquidity premia. We show that this conclusion depends crucially on the assumption of a constant investment opportunity set. In a regime-switching model in which the investment opportunity set varies over...