A unified explanation of risk and mispricing in stock returns underpinned by their aggregate liquidity risk is … presented. We argue alternating liquidity exposures depict two distinct investment preferences-hedging against aggregate … liquidity risk or betting on it. A three-factor model capturing these return variations is developed. Results show that our …

Post-crisis bank regulations raised market-making costs for bank-affiliated dealers. We show that this can, somewhat … surprisingly, improve overall investor welfare and reduce average transaction costs despite the increased cost of immediacy. Bank … dealers in OTC markets optimize between two parallel trading mechanisms: market making and matchmaking. Bank regulations that …

. Liquidity stress tests have been applied in parallel to and independently from solvency stress tests, based on scenarios which … testing of solvency and liquidity: our approach exploits the mechanisms underlying the solvency-liquidity nexus to derive … relations between solvency shocks and liquidity shocks. These relations are then used to model liquidity and solvency risk in a …

This study examines the Pastor-Stambaugh liquidity-augmented four-factor model to revisit whether the marketwide … liquidity is indeed a state variable important for asset pricing in the U.S. equity market over the period 1/1966-12/1999. The …-wise cross-sectional R-squared test, and finds the liquidity factor is not priced and the model does not outperform the Fama …

still, leading to outflows of bank deposits and the drying up of liquidity …