Amihud, Yakov and Haim Mendelson, "Asset Pricing and the Bid-Ask Spread", Journal of Financial Economics, Vol. 17, No. 2, (December 1986), pp. 223-249.
Abstract: This paper studies the effect of the bid-ask spread on asset pricing. We analyze a model in which investors with different expected holding periods trade assets with different relative spreads. The resulting testable hypothesis is that market-observed expected return is an increasing and concave function of the spread. We test this hypothesis, and the empirical results are consistent with the predictions of the model.