Liquidity and asset prices : empirical analysis of the Norwegian stock market
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- Master Thesis 
This thesis investigates time-varying characteristics of illiquidity and the pricing of its risk using liquidity-adjusted capital asset pricing model(LCAPM). Collecting data from Norwegian stock market between 1998 and 2017, we employ multivariate GARCH model to assess the persistence of illiquidity shocks. The pricing of liquidity risk and its implications on expected returns are empirically tested using the conditional LCAPM. We show that various sources of liquidity risk that affect asset returns are time-varying. We find some support for our conditional LCAPM, but our results are not robust to alternative specifications and estimation techniques. The total annualized illiquidity premium found in the Norwegian stock market is 1.75%.