asset prices reflect both covariance risk and misperceptions of firmsapos prospects, and in which arbitrageurs trade against … mispricing. In equilibrium, expected returns are linearly related to both risk and mispricing measures (e.g., fundamental …

closed-form solution for the case where informed agents are risk neutral and the market maker is risk averse. Market …. Thus, liquidity risk is an endogenous parameter determined in equilibrium. Expected market liquidity, liquidity risk, and … the factor. We show that expected market liquidity is lower and liquidity risk is higher when the ex ante volatility of …

We propose a protocol for identifying genuine risk factors. A genuine risk factor must be related to the covariance … matrix of returns, must be priced in the cross-section of returns, and should yield a reward-to-risk ratio that is reasonable … enough to be consistent with risk pricing. A market factor, a profitability factor, and traded versions of macroeconomic …

We propose a protocol for identifying genuine risk factors. The underlying premise is that a risk factor must be … related to the covariance matrix of returns, must be priced in the cross-section of returns, and should yield a reward-to-risk … ratio that is reasonable enough to be consistent with risk pricing. A market factor, a profitability factor, and traded …

and liquidity risk are priced, liquidity enhances market efficiency, and liquidity strengthens the arbitrage linkage …