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

Author

Listed:
  • 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)

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. 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.

Suggested Citation

  • Andros Gregoriou & Christos Ioannidis, 2004. "Asset Pricing Under the Presence of Transactions Cost:Evidence from the UK Stock Market," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 7(2), pages 139-151, Winter.
    • Handle: RePEc:ekn:ekonom:v:7:y:2004:i:2:p:139-151
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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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