Amihud is with the Faculty of Management, Tel Aviv University and the Graduate School of Business, New York University; Mendelson is with the William E. Simon Graduate School of Business Administration, University of Rochester. We thank Robert Merton for helpful comments and suggestions.
The Effects of Beta, Bid-Ask Spread, Residual Risk, and Size on Stock Returns
Article first published online: 30 APR 2012
1989 The American Finance Association
The Journal of Finance
Volume 44, Issue 2, pages 479–486, June 1989
How to Cite
AMIHUD, Y. and MENDELSON, H. (1989), The Effects of Beta, Bid-Ask Spread, Residual Risk, and Size on Stock Returns. The Journal of Finance, 44: 479–486. doi: 10.1111/j.1540-6261.1989.tb05067.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
Merton's  recent extension of the CAPM proposed that asset returns are an increasing function of their beta risk, residual risk, and size and a decreasing function of the public availability of information about them. Associating the latter with asset liquidity and following Amihud and Mendelson's  proposition that asset returns increase with their illiquidity (measured by the bid-ask spread), we jointly estimate the effects of these four factors on stock returns.