Liquidity-adjusted capital asset pricing model in korean housing market

Abstract

Although various studies find the significance of liquidity risk on every asset classes, few studies examined residential real estate market, one of the most illiquid markets. This study investigates the liquidity risk of the housing market under the liquidity-adjusted capital asset pricing model (LCAPM) framework. Our findings show the significance of liquidity risk and that it dominates market risk. We also examine the heterogeneity of liquidity risks among investors, varying with phase of their lives and the market condition and find that the old concerns less about liquidity and but bad market condition makes all people put more value on the house that can be sold with ease.