We show that illiquidity risk matters for asset pricing independently of the specific functional form of the asset pricing model. Employing an out-of-sample non-parametric stochastic discount factor (SDF), that we estimate from portfolio returns of the US equity market, we find that market-wide...

We show that illiquidity risk matters for asset pricing independently of the specific functional form of the liquidity-based asset pricing model. Employing a non-parametric model-free stochastic discount factor (SDF), estimated using different sets of portfolio returns coming from both the stock...