Transaction costs, liquidity risk, and the CCAPM

Weimin Liu, Di Luo and Huainan Zhao

Journal of Banking & Finance, 2016, vol. 63, issue C, 126-145

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.

Keywords: G12; G14; Transaction costs; Liquidity risk; Consumption-based asset pricing (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:63:y:2016:i:c:p:126-145

DOI: 10.1016/j.jbankfin.2015.11.011

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