Jacoby, Gady, David J. Fowler, and Aron A. Gottesman, "The Capital Asset Pricing Model and the Liquidity Effect: A theoretical approach", Journal of Financial Markets, Vol. 3, No. 1, (February 2000), pp. 69-81.
Abstract: In this paper we develop a CAPM-based model to demonstrate that the true measure of systematic risk -- when considering liquidity costs -- is based on net (after bid--ask spread) returns. We further examine the relationship between the expected return and the future spread cost within the CAPM framework. This positive relationship in our model is found to be convex. This finding differs from Amihud and Mendelson's (1986) concave relationship, but it agrees with empirical evidence obtained by Brennan and Subrahmanyam (1996).
Keywords: Capital asset pricing model, Bid-ask spread, Liquidity, Market frictions, Beta.