Lasse Heje Pedersen is Professor of Finance at the Stern School of Business at NYU, a research associate at CEPR and NBER, and associate editor at The Journal of Finance and Journal of Economic Theory. Professor Pedersen received his Ph.D. from the Stanford Graduate School of Business, and his B.S. and M.S. in Mathematics-Economics from University of Copenhagen. His research focuses on liquidity risk. It explores why trading costs vary and may be high exactly when you need to sell, and how this liquidity risk lowers security prices and increases required returns as captured by the liquidity-adjusted capital asset pricing model. The liquidity risk models can help explain equity returns; option prices; bond yields; currency crashes; valuation of OTC securities; shortselling; the liquidity spirals leading to financial crisis with reinforcing drop-and-rebound in prices, increased margins, and tightened risk management; and constitute a realistic departure from classic frictionless finance.


