Abstrak 
Liquidity Adjusted Capital Asset Pricing Model (LCAPM): A Critical Review
Erna Garnia, Rachmat Sudarsono, Dian Masyita, Ina Primiana
Universitas Padjadjaran, Academy Of Strategic Management Journal Volume 15, Special Issue 3, 2016, Print ISSN 1544-1458 Online ISSN 1939-6104
Bahasa Inggris
Universitas Padjadjaran, Academy Of Strategic Management Journal Volume 15, Special Issue 3, 2016, Print ISSN 1544-1458 Online ISSN 1939-6104
Amortized Transaction Cost, capm, LCAPM, liquidity
This paper shows that the liquidity adjusted capital asset pricing model (LCAPM) is simply an extension of standard capital asset pricing model (SCAPM) by taking into account the amortized transaction cost. This paper also shows that the use of amortized risk premium is very critical in order to obtain a correct result. Various contradictory results in many previous publications are shown in this paper. A simple static equilibrium that relating the investor income and expenditure, is used to explain the basic concept of LCAPM and the appropriate liquidity proxy. As the actual transaction cost is usually unknown, this paper proposes two methods to estimate transaction cost. Bid-ask spread and daily price changes are proposed as the proxy of transaction cost. Indonesia stock market characteristics are included to illustrate the importance of the concept.