Asset Pricing with Liquidity Risk: Evidence from the US Stock Market

Asset Pricing with Liquidity Risk: Evidence from the US Stock Market

Faiz Rasool1, Nimra Riaz2, Madiha Afzal3, & Muhammad Mudassar Hussain4
1Institute of Business Management Sciences, University of Agriculture Faisalabad, Pakistan
2Department in Business Administration, Riphah International University Faisalabad, Pakistan
3Shanxi University of Finance and Economics Taiyuan, China
4Lyallpur Business School, Government College University, Faisalabad, Pakistan

Abstract
This study investigates the impact of liquidity risk on asset pricing within the US stock market, exploring the complex relationship between market liquidity and stock returns. The research examines how liquidity risk factors contribute to stock price variations by analyzing a comprehensive dataset spanning multiple market conditions. The study uses advanced econometric techniques and panel data analysis to reveal significant evidence of liquidity risk’s substantial role in determining asset pricing mechanisms. The findings contribute to the existing financial literature by providing empirical insights into the nuanced interactions between market liquidity, risk premiums, and stock returns.

Keywords Asset Pricing; Liquidity Risk; Stock Market; Financial Markets; Risk Premium; Market Efficiency

Citation Rasool, F., Riaz, N., Afzal, M. & Hussain, M. M. (2025). Asset Pricing with Liquidity Risk: Evidence from the US Stock Market. International Journal of Advanced Finance and Accounting, 6(1), 1-10 https://doi.org/10.5281/zenodo.14768867  
Categories: