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 | |
| Publication status | Published - 1 Feb 2016 |
Keywords
- Consumption-based asset pricing
- Liquidity risk
- Transaction costs
ASJC Scopus subject areas
- Finance
- Economics and Econometrics
Fingerprint
Dive into the research topics of 'Transaction costs, liquidity risk, and the CCAPM'. Together they form a unique fingerprint.Cite this
Liu, W., Luo, D., & Zhao, H. (2016). Transaction costs, liquidity risk, and the CCAPM. Journal of Banking and Finance, 63, 126-145. https://doi.org/10.1016/j.jbankfin.2015.11.011