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LAPM: A Liquidity‐Based Asset Pricing Model
Author(s) -
Holmström Bengt,
Tirole Jean
Publication year - 2001
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00391
Subject(s) - capital asset pricing model , leverage (statistics) , market liquidity , consumption based capital asset pricing model , economics , financial economics , liquidity risk , asset (computer security) , stochastic game , business , monetary economics , microeconomics , computer security , machine learning , computer science
The intertemporal CAPM predicts that an asset's price is equal to the expectation of the product of the asset's payoff and a representative consumer's intertemporal marginal rate of substitution. This paper develops an alternative approach to asset pricing based on corporations' desire to hoard liquidity. Our corporate finance approach suggests new determinants of asset prices such as the distribution of wealth within the corporate sector and between the corporate sector and the consumers. Also, leverage ratios, capital adequacy requirements, and the composition of savings affect the corporate demand for liquid assets and, thereby, interest rates.