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| Author: | Jacoby, G. Fowler, D.J. Gottesman, A.A. |
| Title: | The capital asset pricing model and the liquidity effect: A theoretical approach |
| Journal: | Journal of Financial Markets
2000 : FEB, VOL. 3:1, p. 69-81 |
| Index terms: | Capital Assets Pricing Liquidity Markets Theories Models |
| Freeterms: | Bid-ask spread |
| Language: | eng |
| Abstract: | This paper develops a CAPM-based model to demonstrate that the true measure of systematic risk - when considering liquidity costs - is based on net returns. Further is examined the relationship btw. the expected return and the future spread cost within the CAPM framework. This positive relationship in this paper's model is found to be convex. This finding differs from Amihud and Mendelson's (1986) concave relationship, but it agrees with empirical evidence obtained by Brennan and Subrahmanyam (1996). |
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