Transaction costs, liquidity risk, and the CCAPM

Weimin Liu; Di Luo; Huainan Zhao

doi:10.1016/j.jbankfin.2015.11.011

Transaction costs, liquidity risk, and the CCAPM

Weimin Liu, Di Luo, Huainan Zhao

Nottingham University Business School China

Research output: Journal Publication › Article › peer-review

8 Citations (Scopus)

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.

Original language	English
Pages (from-to)	126-145
Number of pages	20
Journal	Journal of Banking and Finance
Volume	63
DOIs	https://doi.org/10.1016/j.jbankfin.2015.11.011
Publication status	Published - 1 Feb 2016

Keywords

Consumption-based asset pricing
Liquidity risk
Transaction costs

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.jbankfin.2015.11.011

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AU - Luo, Di

AU - Zhao, Huainan

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AB - 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.

KW - Consumption-based asset pricing

KW - Liquidity risk

KW - Transaction costs

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JF - Journal of Banking and Finance

ER -

Transaction costs, liquidity risk, and the CCAPM

Abstract

Keywords

ASJC Scopus subject areas

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