Heterogeneous time varying transaction costs and asset pricing in international equity markets |
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Authors: | Andros Gregoriou Christos Ioannidis Sugata Ghosh |
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Affiliation: | (1) Norwich Business School, University of East Anglia, Norwich, NR4 7TJ, UK;(2) School of Management, University of Bath, Bath, BA2 7AY, UK;(3) Economics and Finance Department, Brunel University, Uxbridge, UB8 3PH, UK |
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Abstract: | In this paper, we examine the time variation in transaction costs relative to excess returns, in a panel consisting of 10 international equity indices over the time period 1984–2005. This is undertaken by extending the consumption CAPM (CCAPM) model proposed by Campbell and Shiller (Rev. Financ. Stud. 1:195–228, 1988) to incorporate time varying proportional transaction costs. We rigorously address both the cross-country heterogeneity in the estimated model and endogeneity. We find strong evidence that suggests transaction costs should be included as an additional explanatory variable in the CCAPM. This leads to the conclusion that transaction costs should be included in asset pricing models as their stochastic process impacts directly on private consumption expenditure. |
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Keywords: | Asset pricing Bid-ask spreads Heterogeneity GMM |
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