This paper develops a present value framework that reflects expectations of future changes in liquidity and liquidity premia. In our framework, a liquidity premium depends explicitly on prices, dividends, costs, and returns. We find that the liquidity premium for the CRSP market portfolio is...

We find robust portfolio rules for ambiguity-averse fund managers in a financial market with proportional transaction costs. The model proposed in this paper permits a liquidity premium much bigger than those found by most empirical literature. Our liquidity premium is much bigger when using...

Employment growth (EG) is likely related to liquidity fundamentals of investment opportunities, firm health, and information environment. This, in turn, implies that liquidity risk may play a role in explaining the relation between employment growth and stock returns. We explain the link between...

We investigate the effect of the regime-switching transaction costs and dividends on liquidity premium and investor’s optimal strategy. With reasonably calibrated parameters, we show that counter-cyclical transaction costs substantially raise liquidity premium while procyclical dividends...

We investigate the effect of the regime-switching transaction costs and dividends on liquidity premium and investor’s optimal strategy. With reasonably calibrated parameters, we show that counter-cyclical transaction costs substantially raise liquidity premium while procyclical dividends...

We investigate the effect of the regime-switching transaction costs and dividends on liquidity premium and investor's optimal strategy. With reasonably calibrated parameters, we show that counter-cyclical transaction costs substantially raise liquidity premium while pro-cyclical dividends...

This paper investigates an Epstein-Zin type investors' optimal consumption and portfolio choice problem in the presence of transaction costs and liquidation shocks. We model the liquidation shocks as a Poisson process, which enforces the representative investors to liquidate their wealth in an...