This study aims to estimate the bid-ask spread criterion based on the daily highest and lowest prices and to imply this criterion as a proxy for transaction costs. Then, using this type of transaction costs and liquidity, the consumption-based capital asset pricing mode More
This study aims to estimate the bid-ask spread criterion based on the daily highest and lowest prices and to imply this criterion as a proxy for transaction costs. Then, using this type of transaction costs and liquidity, the consumption-based capital asset pricing model is modified. To perform experimental tests. Daily data is collected from 47 companies accepted on the Tehran Stock Exchange and for the period 2009 to 2018. This study is carried out on 20 portfolios formed based on liquidity criteria Liu (2006), DVOL, Size, and Gibbs. The results of this study show that the capital asset pricing model based on traditional consumption has a poor performance in explaining the return on cross-sectional stocks and liquidity-adjusted CCAPM can explain the bigger portion of cross-sectional return changes compared to the traditional CCAPM model. Also, the results show that the entry of trading cost variables and liquidity risk leads to improved CCAPM.
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