The Asset Pricing and Bid-Ask Spread: An Empirical Evidence Based on the KLSE Market
Asset pricing theories, particularly the Capital Asset Pricing Model (CAPM) asserts that the expected returns on any particular capital asset consists of only two components, namely the returns on a risk-free security and a premium for the risk. This study reexamines the CAPM by incorporating two...
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| Format: | Thesis |
| Language: | English English |
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1998
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| Online Access: | http://psasir.upm.edu.my/id/eprint/8064/1/FEP_1998_8_A.pdf |
| _version_ | 1825944326947995648 |
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| author | Lee, Say Oh |
| author_facet | Lee, Say Oh |
| author_sort | Lee, Say Oh |
| collection | UPM |
| description | Asset pricing theories, particularly the Capital Asset Pricing Model (CAPM) asserts that the expected returns on any particular capital asset consists
of only two components, namely the returns on a risk-free security and a
premium for the risk. This study reexamines the CAPM by incorporating two
important variables, namely the bid-ask spread as a measure of the transaction
costs and firm size to test on the validity of both variables in the equilibrium
asset returns model. Using the Generalized Linear Regression method as
described in Kmenta (1986), this study finds a positive significant relationship between the stock returns and bid-ask spreads as a measure of the transaction
costs for all the three regression models, namely all-companies, average-size
companies and ten size-sorted portfolios models. The findings confirm the
theoretical conjecture that bid-ask spreads are priced in the asset returns, and
stocks with higher bid-ask spreads carry a liquidity premium in their prices. The
results suggest that by decreasing the transaction costs will generate a greater
order flow, which in turn increase the frequency of the market. Nevertheless, the
negative relation between the firm size and stock returns can only be found in
two out of the three regression models, that is, the all-companies and average size
companies models. The results corroborate previous studies where small
firm anomaly exist in the asset pricing model in the KLSE market. However, the
size effect is found to be insignificant in explaining the portfolios returns in the
ten size-sorted portfolios model. Thus, this study evidenced the ability of the
spread variable in explaining the variation in the stock returns as compare to the
firm size variable in the KLSE market. |
| first_indexed | 2024-03-06T07:14:08Z |
| format | Thesis |
| id | upm.eprints-8064 |
| institution | Universiti Putra Malaysia |
| language | English English |
| last_indexed | 2024-03-06T07:14:08Z |
| publishDate | 1998 |
| record_format | dspace |
| spelling | upm.eprints-80642010-10-13T09:21:56Z http://psasir.upm.edu.my/id/eprint/8064/ The Asset Pricing and Bid-Ask Spread: An Empirical Evidence Based on the KLSE Market Lee, Say Oh Asset pricing theories, particularly the Capital Asset Pricing Model (CAPM) asserts that the expected returns on any particular capital asset consists of only two components, namely the returns on a risk-free security and a premium for the risk. This study reexamines the CAPM by incorporating two important variables, namely the bid-ask spread as a measure of the transaction costs and firm size to test on the validity of both variables in the equilibrium asset returns model. Using the Generalized Linear Regression method as described in Kmenta (1986), this study finds a positive significant relationship between the stock returns and bid-ask spreads as a measure of the transaction costs for all the three regression models, namely all-companies, average-size companies and ten size-sorted portfolios models. The findings confirm the theoretical conjecture that bid-ask spreads are priced in the asset returns, and stocks with higher bid-ask spreads carry a liquidity premium in their prices. The results suggest that by decreasing the transaction costs will generate a greater order flow, which in turn increase the frequency of the market. Nevertheless, the negative relation between the firm size and stock returns can only be found in two out of the three regression models, that is, the all-companies and average size companies models. The results corroborate previous studies where small firm anomaly exist in the asset pricing model in the KLSE market. However, the size effect is found to be insignificant in explaining the portfolios returns in the ten size-sorted portfolios model. Thus, this study evidenced the ability of the spread variable in explaining the variation in the stock returns as compare to the firm size variable in the KLSE market. 1998 Thesis NonPeerReviewed application/pdf en http://psasir.upm.edu.my/id/eprint/8064/1/FEP_1998_8_A.pdf Lee, Say Oh (1998) The Asset Pricing and Bid-Ask Spread: An Empirical Evidence Based on the KLSE Market. Masters thesis, Universiti Putra Malaysia. Asset liability management - Case studies English |
| spellingShingle | Asset liability management - Case studies Lee, Say Oh The Asset Pricing and Bid-Ask Spread: An Empirical Evidence Based on the KLSE Market |
| title | The Asset Pricing and Bid-Ask Spread: An Empirical Evidence Based on the KLSE Market |
| title_full | The Asset Pricing and Bid-Ask Spread: An Empirical Evidence Based on the KLSE Market |
| title_fullStr | The Asset Pricing and Bid-Ask Spread: An Empirical Evidence Based on the KLSE Market |
| title_full_unstemmed | The Asset Pricing and Bid-Ask Spread: An Empirical Evidence Based on the KLSE Market |
| title_short | The Asset Pricing and Bid-Ask Spread: An Empirical Evidence Based on the KLSE Market |
| title_sort | asset pricing and bid ask spread an empirical evidence based on the klse market |
| topic | Asset liability management - Case studies |
| url | http://psasir.upm.edu.my/id/eprint/8064/1/FEP_1998_8_A.pdf |
| work_keys_str_mv | AT leesayoh theassetpricingandbidaskspreadanempiricalevidencebasedontheklsemarket AT leesayoh assetpricingandbidaskspreadanempiricalevidencebasedontheklsemarket |