Constructing Comparable Sources of Liquidity Risk in the CAPM
نویسندگان
چکیده
This paper adopts the methodology used by Fama and French (1993) to construct two measures of liquidity risk. These liquidity proxies solve the empirical issue of comparability between risk factors by utilizing the standardized unit of risk first proposed for size and value effects. As far as I know, this has not been done before. Modeling these additional liquidity premiums indicate an improvement over the three-factor model in allowing us to provide a better description of the cross section of average returns. Constructing Comparable Sources of Liquidity Risk in the CAPM Lai 2 A Senior Economics Undergraduate Honors Thesis Advisor: Professor Roger Craine University of California Berkeley
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