This paper and its sequel (Financial Leverage Strategy with Transaction Costs, Applied Mathematical Finance 3, 1996, 191-208) pick up the pecking order leverage theory where it was left in 1984 by Stewart Myers (JF v.39) and his joint paper with Nicolas Majluf (JFE v.13). Static tradeoff...

We examine whether the use of the three-moment capital asset pricing model can account for liquidity risk. We also make a comparative analysis of a four-factor model based on Fama-French and Pástor-Stambaugh factors versus a model based solely on stock characteristics. Our findings suggest that...