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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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Bibliographic Info

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
Date of revision:
Handle: RePEc:bru:bruedp:03-01

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

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This paper has been announced in the following NEP Reports:

• NEP-ACC-2004-07-18 (Accounting & Auditing)
• NEP-ALL-2004-07-18 (All new papers)
• NEP-FIN-2004-07-18 (Finance)
• NEP-FMK-2004-07-18 (Financial Markets)

References

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    • S Rao Aiyagari & Mark Gertler, 1997. "Asset Returns with transaction costs and uninsured individual risk," Levine's Working Paper Archive 648, David K. Levine.
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Cited by:

1. Gregoriou, Andros & Nguyen, Ngoc Dung, 2010. "Stock liquidity and investment opportunities: New evidence from FTSE 100 index deletions," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(3), pages 267-274, July.

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