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Asian Review of Financial Research, Vol., No..
pp.461~480
pp.461~480
New Liquidity Risk in a Multi-period Investment Horizon
Soon-Ho Kim National Pension Research Institute
We analytically find a new source of illiquidity risk in Merton (1973)¡¯s intertemporal CAPM, which is the covariance between stock returns and state variables, expanding Acharya and Pedersen (2005). Using two stock market risk factors and two bond market risk factors as state variables to capture a shift in the investment opportunity set, we find that the new illiquidity risk is priced. After controlling the new illiquidity risk, Acharya and Pedersen (2005)¡¯s two illiquidity risks are not priced anymore.
Soon-Ho Kim
We analytically find a new source of illiquidity risk in Merton (1973)¡¯s intertemporal CAPM, which is the covariance between stock returns and state variables, expanding Acharya and Pedersen (2005). Using two stock market risk factors and two bond market risk factors as state variables to capture a shift in the investment opportunity set, we find that the new illiquidity risk is priced. After controlling the new illiquidity risk, Acharya and Pedersen (2005)¡¯s two illiquidity risks are not priced anymore.
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