In an economy with transaction costs, investors with a lower trading frequency will choose to hold assets with a higher transaction cost, and will require a higher expected return to compensate. If we use trading turnover to measure the trading frequency of marginal investors, Taiwan's data is consistent with this prediction. Using the 1976-1994 sample period, we find that stocks with higher turnover have lower expected returns. There is also a significant size effect in the data: the stocks with a larger market capitalization have a lower expected return. The relation between dividend yield and expected returns is not significantly positive, which is not consistent with the tax hypothesis. The data is not consistent with the CAPM either, market beta cannot explain expected returns.