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Asset Pricing Under the Presence of Transactions Cost:Evidence from the UK Stock Market

Listed author(s):
  • Andros Gregoriou

    (Brunel Business School, Economics and Finance Section, Brunel University, Uxbridge, Middlesex, UB8 3PH)

  • Christos Ioannidis

    (Brunel Business School, Economics and Finance Section, Brunel University, Uxbridge, Middlesex, UB8 3PH)

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

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Handle: RePEc:ekn:ekonom:v:7:y:2004:i:2:p:139-151
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