Asset pricing and bid-ask pricing

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1、JournalofFinancialEconomics17(1986)223-219.North-HollandASSETPRICINGAIVDTHEBID-ASKSPREAD*ReceivedAugust1985.tinalrsrsionreceived.~pril1986Thispaperstudiestheeffectofthebid-askspreadonassetpricing.Weanalyzeamodelinwhichinvestorswithdifferentexpectedholdin

2、gperiodstradeassetswithdifferentrelativespreads.Theresultingtestablehypothesisisthatmarket-obsewedexpectedreturnisanincreasingandconcavefunctionofthespread.Wetestthishypothesis.andtheempiricalresultsareconsistentwiththepredictionsofthemodel.1.Introductio

3、nLiquidity.marketabilityortradingcostsareamongtheprimaryattributesofmanyinvestmentplansandfinancialinstruments.Inthesecuritiesindustry,portfoliomanagersandinvestmentconsultantstailorportfoliostofittheirclientsinvestmenthorizonsandliquidityobjectives.Butd

4、espiteitsevidentimportanceinpractice,theroleofliquidityincapitalmarketsishardlyreflectedinacademicresearch.Thispaperattemptstonarrowthisgapbyexaminingtheeffectsofilliquidityonassetpricing.llliquiditycanbemeasuredbythecostofimmediateexecution.Aninvestorwi

5、llingtotransactfacesatradeoff:Hemayeitherwaittotransactatafavorablepriceorinsistonimmediateexecutionatthecurrentbidoraskprice.Thequotedask(offer)priceincludesapremiumforimmediatebuying,andthebidpricesimilarlyreflectsaconcessionrequiredforimmediatesale.Th

6、us.anaturalmeasureofilliquidityisthespreadbetweenthebidandask*WewishtothankHansStallandRobertWhaleyforfurnishingthespreaddata,andMannyPaiforexcellentprogrammingassistance.WCacknowledgehelpfulcommentsbytheEditor.CliffordW.Smith.byananonymousreferee,byHarr

7、yDeAngelo.LindaDeAngelo,MichaelC.Jensen.KrishnaRamaswamyandJerryZimmerman.andespeciallvbyJohnLongandG.WilliamSchwert.PartialfinancialsupportbythelManageriaJEconomicsResearchCenter-oftheUniversityofRoth.ster.theSalomonBrothersCenterfortheStudyofFinancialM

8、arkets.andtheIsraelInstituteforBusinessResearchisacknowledged.0304~405X/86/53.50S1986.ElsevierSciencePublishersB.V.(North-Holland)prices,whichisthesumofthebuyingpremiumandthesellingconcession.Indeed.therelativespreadonstoc