LAPM: A liquidity-based asset pricing model

Bengt Holmström, Jean Tirole

Research output: Contribution to journalArticlepeer-review

122 Scopus citations


The intertemporal CAPM predicts that an asset's price is equal to the expectation of the product of the asset's payoff and a representative consumer's intertemporal marginal rate of substitution. This paper develops an alternative approach to asset pricing based on corporations' desire to hoard liquidity. Our corporate finance approach suggests new determinants of asset prices such as the distribution of wealth within the corporate sector and between the corporate sector and the consumers. Also, leverage ratios, capital adequacy requirements, and the composition of savings affect the corporate demand for liquid assets and, thereby, interest rates.

Original languageEnglish (US)
Pages (from-to)1837-1867
Number of pages31
JournalJournal of Finance
Issue number5
StatePublished - 2001
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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