This paper derives an equilibrium asset pricing model with liquidity risk. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Under a mild set of assumptions, we prove that an equilibrium price process exists...

This paper studies an equilibrium model with heterogeneous agents, asset price bubbles, and trading constraints. Market liquidity is modeled as a stochastic quantity impact from trading on the price. Bubbles are larger in liquid markets and when trading constraints are more binding. Systemic...

This paper develops an arbitrage-free pricing theory for a term structure of fi xed income securities that incorporates liquidity risk. In our model, there is a quantity impact on the term structure of zero-coupon bond prices from the trading of any single zero-coupon bond. We derive a set of...