Liquidity Premium and Transaction Cost ()
ABSTRACT
Low infrequent trading implies low liquidity.
Liquidity and transaction cost are two sides of the coin.
Whether transaction cost is the determinant of stock liquidity premium? This
paper selects common stocks of NYSE/Amex/Arca/ Nasdaq
from 1926 to 2011 as research samples, makes a comprehensive analysis through
Fama-French three factor model and Fama-French five factor model, LCAPM model
and Pástor Stambaugh model. The results show that the ability of BA12, LOT12, CS12, and Cgibbs is limited, which means that transaction cost
is not the determinant of liquidity premium, and the influence of transaction
cost on the expected return of stock is indirect and secondary. The research
provides a strong empirical experience for the asset pricing power of
transaction cost is the second order. Thus, from the perspective of pricing
meaning, transaction cost is not the decisive factor of price.
Share and Cite:
Yang, J. and Zhang, X. (2021) Liquidity Premium and Transaction Cost.
Theoretical Economics Letters,
11, 194-208. doi:
10.4236/tel.2021.112014.