Transaction costs, liquidity risk, and the CCAPM

Weimin Liu; Di Luo; Huainan Zhao

doi:10.1016/j.jbankfin.2015.11.011

Journal of Banking & Finance Vol. 63 2016

Transaction costs, liquidity risk, and the CCAPM

Weimin Liu^1,2; Di Luo³; Huainan Zhao⁴

¹ University of Nottingham · ² Shanxi University of Traditional Chinese Medicine · ³ Swansea University · ⁴ Cranfield University

open access

Abstract

In this paper, we make a liquidity adjustment to the consumption-based capital asset pricing model (CCAPM) and show that the liquidity-adjusted CCAPM is a generalized model of Acharya and Pedersen (2005). Using different proxies for transaction costs such as the effective trading costs measure of Hasbrouck (2009) and the bid-ask spread estimates of Corwin and Schultz (2012), we find that the liquidity-adjusted CCAPM explains a larger fraction of the cross-sectional return variations.

DOI: 10.1016/j.jbankfin.2015.11.011
Volume: 63
Pages: 126-145
Language: en
Sources: openalex crossref bibtex:phds-export.bib

Transaction costs, liquidity risk, and the CCAPM

Abstract

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