Transaction costs, liquidity risk, and the CCAPM
journal contributionposted on 10.02.2017, 11:02 by Weimin Liu, Di Luo, Huainan ZhaoHuainan Zhao
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.
- Business and Economics