Cross-sectional Asset Pricing Results: Volatility and Liquidity Risk The setup is the same as in Table II. As test assets we use excess returns to the five carry trade portfolios based on all countries. Factors are the dollar risk factor (DOL), FX volatility innova- tions (VOL), and innovations to (i) the global average percentage bid-ask spread denoted as BAS (Panel A), (ii) the TED spread (Panel B), or (iii) the Pastor and Stambaugh (2003) liquidity mea- sure denoted as PS (Panel C). The latter three measures of liquidity risk are orthogonalized with respect to volatility innovations. Panel A: Volatility and Global Bid-Ask Spreads GMM DOL BAS VOL R2 HJ dist b 0.01 18.23 -8.11 0.98 0.06 s.e. (0.07) (36.08) (4.24) (0.82) 0.21 0.01 -0.08 s.e. (0.31) (0.02) (0.04) Panel B: Volatility and TED Spread GMM DOL TED VOL R2 HJ dist b 0.01 -1.03 -6.17 0.98 0.07 s.e. (0.05) (2.94) (3.28) (0.66) A 0.21 -0.08 -0.06 s.e. (0.25) (0.24) (0.03) Panel C: Volatility and P/S Liquidity Measure GMM DOL PS VOL R2 HJ dist b -0.01 -1.65 -7.46 0.97 0.08 s.e. (0.07) (10.36) (3.82) (0.65) 0.18 -0.01 -0.08 s.e. (0.29) (0.04) (0.04)