Abstract
This paper compares price impact ratio (Amihud, 2002) and new priceimpact ratio (Florackis, Gregoriou, & Kostakis, 2011) by taking dailydata from Pakistani market for a period of 14 years ranging fromJanuary 2000 to December 2013. The first part of the paper covers thecomparison of deciles portfolios and the second part covers riskadjusted deciles portfolios. Results suggest that new price impact modelgives better results as compared to extensively applied price impactmodel and confirms that costs of transaction and trading frequencyjointly effect asset pricing. Therefore, both the aspects should be studiedmutually rather than in isolation.
 JEL Classification Codes: G10; G12; G14
Highlights
A stock market is considered to be liquid when large transactions are executed with small impact on prices of securities
This paper compares price impact ratio (Amihud, 2002) and new price impact ratio (Florackis, Gregoriou, & Kostakis, 2011) by taking daily data from Pakistani market for a period of 14 years ranging from January 2000 to December 2013
The findings show that after adjusting for size, momentum and value risk, stocks with low R toTR and high turnover rates determine large premia. It means that the trading frequency of return devastatingly effect transaction costs, which is based on notion of (Amihud & Mendelson, 1986) and confirms the results of (Florackis et al, 2011)
Summary
A stock market is considered to be liquid when large transactions are executed with small impact on prices of securities. Acharya and Pedersen (2005) utilized the Amihud (2002) measure to demonstrate that the covariance among liquidity and returns considerably affects the stock's normal return. Florackis et al (2011) introduced Return to-Turnover proportion as a different option for the generally utilized Return to Volume proportion presented by (Amihud, 2002). They exhibited that instead of simple direct connection between trading cost and stock returns, the combine transaction cost and trading frequency matter more for asset pricing. Based on the available literature, it is one of the first studies to see the combined impact of transaction cost and trading frequency on asset pricing in Pakistani context
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