GMM and present value tests of the C-CAPM under Transactions Costs: Evidence from the UK stock market

Andros Gregoriou () and Christos Ioannidis ()

Public Policy Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University

Abstract: In this paper we test for the inclusion of the bid-ask spread in the consumption CAPM, in the UK stock market over the time period of 1980-2000. Two econometric models are used; first, Fisher’s (1994) asset pricing model is estimated by GMM, and secondly, the VAR approach proposed by Campbell and Shiller is extended to include the bid-ask spread. Overall the statistical tests are unable to reject the bid-ask spread as an independent explanatory variable in the C-CAPM. This leads to the conclusion that transactions costs should be included in asset pricing models.

Pages: 33 pages
Date: 2003-01
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Working Paper: GMM and present value tests of the C-CAPM under Transactions Costs: Evidence from the UK stock market (2003)
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