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

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A. Gregoriou
CHRISTOS IOANNIDIS ()

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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.

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Paper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Economics and Finance Discussion Papers with number 03-01.

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Length: 33 pages
Date of creation: Jan 2003
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Handle: RePEc:bru:bruedp:03-01

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Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK

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