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Transaction costs, liquidity risk, and the CCAPM

Transaction costs, liquidity risk, and the CCAPM
Transaction costs, liquidity risk, and the CCAPM
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.
0378-4266
126-145
Liu, Weimin
e81ff941-d869-4f9a-ad99-eaa0f9675480
Luo, Di
cc1b0fa7-f630-45dc-ab05-495f9023148f
Zhao, Huainan
3b4a564a-b66f-431f-b65a-6246eeeefe77
Liu, Weimin
e81ff941-d869-4f9a-ad99-eaa0f9675480
Luo, Di
cc1b0fa7-f630-45dc-ab05-495f9023148f
Zhao, Huainan
3b4a564a-b66f-431f-b65a-6246eeeefe77

Liu, Weimin, Luo, Di and Zhao, Huainan (2016) Transaction costs, liquidity risk, and the CCAPM. Journal of Banking and Finance, 63, 126-145. (doi:10.1016/j.jbankfin.2015.11.011).

Record type: Article

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.

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More information

Accepted/In Press date: 20 November 2015
e-pub ahead of print date: 7 December 2015
Published date: February 2016
Organisations: Banking & Finance

Identifiers

Local EPrints ID: 410570
URI: http://eprints.soton.ac.uk/id/eprint/410570
DOI: doi:10.1016/j.jbankfin.2015.11.011
ISSN: 0378-4266
PURE UUID: 993bc45f-17f6-4296-b7b5-3b44b3838c4e
ORCID for Di Luo: ORCID iD orcid.org/0000-0001-7405-6347

Catalogue record

Date deposited: 09 Jun 2017 09:08
Last modified: 16 Mar 2024 04:28

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Contributors

Author: Weimin Liu
Author: Di Luo ORCID iD
Author: Huainan Zhao

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