Liquidity Asset Pricing: Empirical Researches On SHSE

Asset pricing, which focuses on the relationship between the risk and return, is the essential part of modern finance. As an emerging branch of finance, market microstructure studies the properties and rules about the financial market through a microcosmic level. Liquidity asset pricing, integrating the classic asset pricing and market microstructure, researches the liquidity as a factor in asset pricing and has become one of the main issues in the field of modern financial research.This thesis divides the liquidity asset pricing into three kinds: liquidity level asset premium, liquidity risk asset pricing and limited liquidity asset pricing. The paper, in which bid-ask spread, quote depth, ILLIQ and turnover are taken as liquidity indictors, also makes empirical researches about the relationship between liquidity and return in Chinese Shanghai stock market, expecting to give some advice.This thesis consists of three parts:The first part includes the chapter 1 and chapter 2. Chapter 1 makes an introduction about the background, signification and the development of liquidity asset pricing. Chapter 2 reviews the two foundations of liquidity asset pricing: modern asset pricing model (MPT, CAPM and APT) and market microstructure (the definition, measurement and character of liquidity).The part 2 as the principal part includes Chapter 3, Chapter 4, Chapter 5 and Chapter 6. A-M, The classic model, is introduced and the empirical research is done in Chapter3. Chapter 4 researches the effect of liquidity risk on security's return based on liquidity adjust CAPM, which decomposes the effect of liquidity risk into the contribution from each of the three kinds of risk. In chapter 5, we introduce two limited liquidity asset pricing model, providing a new point to think of some market rules in China stock market, such as full circulation, ST and PT etc. The probability of informed trading (PIN), as a measurement of information risk, is introduced and the relationship between information risk, liquidity and volatility, which are three system risk, in Chapter6.The part 3, the last chapter 7, sums up the full text and makes a prospect about this paper.