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. This is undertaken by extending the VAR approach proposed by Campbell and Shiller (1988a) to incorporate the bid-ask spread. Overall the statistical tests are unable to reject the bid-ask spread as an independent explanatory variable in the consumption CAPM. This leads to the conclusion that transactions costs should be included in asset pricing models.
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Article provided by Cyprus Economic Society and University of Cyprus in its journal Ekonomia.
Volume (Year): 7 (2004) Issue (Month): 2 (Winter) Pages: 139-151 Download reference. The following formats are available: HTML
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