This paper derives an equilibrium asset pricing model with liquidity risk. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Under a mild set of assumptions, we prove that an equilibrium price process exists...

We use real estate investment trusts to examine how asset liquidation values influence a firm's financing choices, since the productivity and quality of each asset is observable and potential measures of an asset's liquidation value are easier to ascertain ex-ante. We show that compared to firms...