We revisit the role of liquidity risk. We successfully replicate Pastor and Stambaugh's (2003) gamma liquidity risk … compensation for liquidity risk. We create five alternative liquidity risk indices from various popular liquidity proxies. Using …

Liquidity is a risk factor of primary relevance that can significantly affect the asset allocation decisions of … liquidity, intended as the cost needed to liquidate the portfolio. Within this framework, the traditional minimum variance … liquidity over the standard minimum variance solution. Meanwhile, the increase in portfolio risk is limited, generating large …

This paper investigates the relationship between credit risk and liquidity risk, based on the potential interdependence … between liquid asset ratio and non-performing loans ratio, as well as systemic liquidity risk. The data used cover the period … increases, with or without systemic liquidity risk, and consequently that liquidity risk increases as credit risk increases, and …

. 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 …

We examine a theoretical model of liquidity with three assets - money, government bonds and equity - that are used for … transaction purposes. Money and bonds complement each other in the payment system. The liquidity of equity is derived as an … equilibrium outcome. Liquidity cycles arise from the loss of confidence of the traders in the liquidity of the system. Both open …