Journal of Finance Vol. 58 No. 4 2003
Presidential Address: Liquidity and Price Discovery
Abstract
This paper examines the implications of market microstructure for asset pricing. I argue that asset pricing ignores the central fact that asset prices evolve in markets. Markets provide liquidity and price discovery, and I argue that asset pricing models need to be recast in broader terms to incorporate the transactions costs of liquidity and the risks of price discovery. I argue that symmetric information‐based asset pricing models do not work because they assume that the underlying problems of liquidity and price discovery have been solved. I develop an asymmetric information asset pricing model that incorporates these effects.
- DOI
- 10.1111/1540-6261.00569
- Volume
- 58
- Issue
- 4
- Pages
- 1335-1354
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex