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Abstract
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This study aims to investigate a capital asset pricing model (CAPM)
based on consumption within the capital market in Iran, which is adjusted using
transaction costs and liquidity risk. The study is carried out on twenty
portfolios, formed on the basis of liquidity criteria using seasonal data from
2009 to 2018. In other words, this approach is applied to analyse the target
pricing model through transaction costs proxy and evaluation of the portfolios.
Exploiting the proposed bid-ask spread estimator as the transaction costs
proxy shows that liquidity-adjusted CCAPM explains a bigger portion of
cross-sectional return changes compared to the traditional CCAPM model. In
addition, the results show that disregarding transaction costs and liquidity risk
may lead to an inaccurate estimate of the expected return
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