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 …

We derive closed form expressions for equilibrium asset prices and liquidity in an economy populated by a finite number … prices. Market liquidity is non-monotonic in funding liquidity and may decrease in the number of investors. In the presence … of liquidity shortage, price impact becomes negative and gives rise to an illiquidity premium in asset prices …