Transaction costs,liquidity risk,and the CCAPM |
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Institution: | 1. EMLYON Business School. Department of Economics, Finance and Control Avenue Guy de Collongue 22, Ecully 69134, France;2. Utrecht University, Utrecht School of Economics, Kriekenpitplein 21–22, EC, Utrecht 3584, Netherlands |
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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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Keywords: | Transaction costs Liquidity risk Consumption-based asset pricing |
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