This paper re-examines the liquidity effect on stock expected returns in the NYSE over the period 1926–2008, the pre … sample suggests that the systematic liquidity risk plays a significant role in the cross-sectional variation of stock …

This Paper solves explicitly a simple equilibrium asset pricing model with liquidity risk – the risk arising from … unpredictable changes in liquidity over time. In our liquidity-adjusted capital asset pricing model, a security’s required return … depends on its expected liquidity as well as on the covariances of its own return and liquidity with market return and market …