n of capital across sectors and activity. In the open economy context, there arc two addi- tional potential distortions due to taxation (Razin and Sadka, 1991). Under globalization, residents in any country may engage in rate of return arbitrage on capital (firms) and saving (households and firms)

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Pederson and Pastor & Stambaugh using single measures of liquidity [Acharya & Pedersen 2005, Pastor & Stambaugh 2003], Goyenko et al, Korajczyk and Sadka [Goyenko et al 2009], Liu [Liu 2006 & 2009] and Lee [Lee 2005]. Given the poor historical performance of the CAPM, the Fama-French three factor mod

problems can explain the post earnings drift that follows unexpectedly high or low earnings announcements [Chordia et al 2009]. While Korajczyk and Sadka show that liquidity can explain up to half the benefits of momentum strategy anomalies documented by Jegadeesh & Titman [Korajczyk & Sadka 2006]. T