Pervasive Liquidity Risk

@inproceedings{Eckbo2002PervasiveLR,
  title={Pervasive Liquidity Risk},
  author={B. Espen Eckbo and Oyvind Norli},
  year={2002}
}
While there is no equilibrium framework for defining liquidity risk per se, several plausible arguments suggest that liquidity risk is pervasive and thus may be priced. For example, market frictions increase the cost of hedging strategies requiring frequent portfolio rebalancing. Also, liquidity risk is likely to play a role whenever the market declines and investors are prevented from hedging via short positions. Using monthly return data from 1963-2000, and a broad set of test assets, we… Expand
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