Transaction Costs, Liquidity Risk, and the CCAPM

Weimin Liu; Di Luo; Huainan Zhao

doi:10.1016/j.jbankfin.2015.11.011

Transaction Costs, Liquidity Risk, and the CCAPM

Weimin Liu, Di Luo, Huainan Zhao

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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.

Original language	English
Pages (from-to)	126-145
Number of pages	20
Journal	Journal of Banking and Finance
Volume	63
DOIs	https://doi.org/10.1016/j.jbankfin.2015.11.011
Publication status	Published - Feb 2016

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10.1016/j.jbankfin.2015.11.011

Author Accepted Manuscript Accepted author manuscript, 1.29 MBLicence: CC BY-NC-ND

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title = "Transaction Costs, Liquidity Risk, and the CCAPM",

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.",

author = "Weimin Liu and Di Luo and Huainan Zhao",

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AU - Luo, Di

AU - Zhao, Huainan

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AB - 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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DO - 10.1016/j.jbankfin.2015.11.011

M3 - Article

SN - 0378-4266

VL - 63

SP - 126

EP - 145

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

ER -

Transaction Costs, Liquidity Risk, and the CCAPM

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