Publisher's Synopsis
Master's Thesis from the year 2017 in the subject Business economics - Investment and Finance, grade: 12, Copenhagen Business School, language: English, abstract: Unraveling the enigmatic dance between market forces and corporate actions, this book embarks on a critical exploration of how firm liquidity shapes asset prices. Delving into the heart of financial markets, it dissects the effectiveness of prevailing liquidity measures in capturing the intricate, time-sensitive repercussions of corporate events, such as share repurchases and debt issuances, on a company's financial standing. Readers will gain insights into the nuanced relationship between market liquidity and firm liquidity, understanding how these forces interplay to influence investment decisions and overall market stability. The study rigorously examines the performance of the Liquidity-adjusted Capital Asset Pricing Model (L-CAPM), a cornerstone of modern finance, in accounting for the often-overlooked effects of firm liquidity. Through meticulous event study analysis and empirical testing, the research scrutinizes the model's ability to accurately reflect the impact of liquidity risk on asset returns, while also acknowledging the limitations inherent in current methodologies. It provides a comprehensive understanding of the assumptions, equilibrium conditions, and empirical applications of the L-CAPM, offering valuable perspectives on its strengths and weaknesses. Furthermore, the book critically assesses the reliability of commonly used illiquidity proxies, such as Amihud's measure, in reflecting the true liquidity dynamics triggered by specific corporate events. The findings challenge conventional wisdom, highlighting the need for more sophisticated approaches to capture the dynamic nature of liquidity in response to firm-specific actions. Ultimately, this book serves as a crucial resource for academics, practitioners, and policymakers seeking a deeper understanding of the complex interplay between
