http://repub.eur.nl/res/aut/5191/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/22269/ 2011-02-01T00:00:00Z We derive an equilibrium asset pricing model incorporating liquidity risk, derivatives, and short-selling due to hedging of nontraded risk. We show that illiquid assets can have lower expected returns if the short-sellers have more wealth, lower risk aversion, or shorter horizon. The pricing of liquidity risk is different for derivatives than for positive-net-supply assets, and depends on investors' net nontraded risk exposure. We estimate this model for the credit default swap market. We find strong evidence for an expected liquidity premium earned by the credit protection seller. The effect of liquidity risk is significant but economically small. http://repub.eur.nl/res/pub/7724/ 1999-05-24T00:00:00Z This paper uses Reuters exchange rate data to investigate the contributions to the price discovery process by individual banks in the foreign exchange market. We propose multivariate time series models as well as models in tick time to study the dynamic relations between the quotes of individual banks. We investigate the hypothesis that German banks are price leaders in the deutschmark/dollar market. Our empirical results suggest an important but not exclusive role for German banks in the price discovery process. There is also a group of banks, German and non-German, that lags behind the market and does not contribute to the price discovery process. In contrast to Peiers~(1997) we do not find evidence for stronger price leadership of Deutsche bank on days with suspected Bundesbank interventions in the foreign exchange market.