So the point of the singer terhaar is to modify the ICAPM to include a premium for market segregation with =std dev x Sharpe x %integration. Then take the weighted average of the previous equation and the ICAPM. My question is where do I add the liquidity premium? Also a follow up question: where exactly do we use the ICAPM? The risk premium is the weighted average of std dev x sharpe and std dev x sharpe x %integration
You take the weighted average of the sd x sharpe x correlation and sd x sharpe, depending on the % of integration.
There was a discussion about the liquidity premium here, I think whether you include it in the end, or in each of the formulas, would give you the same result.
If they give it to you, just add it.
No matter you do it to the final calculation (without weighting), or to the previous ones, it’ll give the same result, if I’m not wrong.