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Inside and Outside Liquidity$
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Bengt Holmstrom and Jean Tirole

Print publication date: 2011

Print ISBN-13: 9780262015783

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262015783.001.0001

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A Liquidity Asset Pricing Model (LAPM)

A Liquidity Asset Pricing Model (LAPM)

Chapter:
(p.89) 4 A Liquidity Asset Pricing Model (LAPM)
Source:
Inside and Outside Liquidity
Author(s):

Holmström Bengt

Tirole Jean

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262015783.003.0005

This chapter applies the general liquidity asset pricing model (LAPM) to heterogeneous firms using linear technologies. It then explains that uncertainty can influence all parameters of technologies. It starts by presenting a case where there are two aggregate shocks, before moving on to the general model. LAPM demonstrated how liquidity premia are determined in such a context, how they influence firm values and bond yields, and how firms plan investments and properly manage liquidity risks in light of such premia.

Keywords:   liquidity asset pricing model, heterogeneous firms, liquidity, aggregate shocks

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