Liquidity Risk, Transaction Costs and Financial Closedness: Lessons from the Iranian and Turkish Stock Markets

Sedighe Alizadeh*, Mohammad Shahiki Tash, Johannes Kabderian Dreyer

*Corresponding author

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review


Purpose: This paper aims to study the impact of liquidity risk and transaction costs on stock pricing in Iran, a closed market operating under a financial embargo and compare the results with those of an important neighboring market, namely, Turkey. Design/methodology/approach: This study follows Liu et al. (2016) and incorporates liquidity risk and transaction costs into the traditional consumption-based asset-pricing model (CCAPM) from 2009 to 2017. Effective transaction costs are estimated a la Hasbrouck (2009) and liquidity risk according to eight different criteria. Findings: According to the results, both liquidity risk and transaction costs are higher in Iran, possibly due to the financial embargo. Thus, relative to Turkey, this paper should expect a higher increase in the CCAPM pricing performance in Iran when accounting for these two variables. The results are in line with this expectation and indicate that adjusting the CCAPM significantly increases its pricing performance in both countries, but relatively more in Iran. Originality/value: This study compares liquidity risk and transaction costs in an economy under the extreme case of a financial embargo to an open yet in other important aspects similar economy from the same region.

TidsskriftReview of Accounting and Finance
Udgave nummer1
Sider (fra-til)84-102
Antal sider19
StatusUdgivet - 2021

Bibliografisk note

Important note from the Publisher regading the attached version of he article: 'This author accepted manuscript is deposited under a Creative Commons Attribution Non-commercial 4.0 International (CC BY-NC) licence. This means that anyone may distribute, adapt, and build upon the work for non-commercial purposes, subject to full attribution. If you wish to use this manuscript for commercial purposes, please contact'


  • Financial Embargo
  • transaction costs
  • liquidity risk
  • consumption risk
  • Asset-Pricing
  • financial closedness and openness

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