Liquidity And Asset Pricing

Asset pricing is the core of modern finance, various asset pricing models attempt to identify the impact of asset prices and explain the yield differences, between the various factors to guide investors make decision. The level of assets liquidity, whether the impact of asset prices and capital market theory has been a research hotspot and investment decisions when investors take into account one important factor. In the stock market, many financial phenomena affect the development of asset pricing theory, such as the phenomenon of scale, phenomenon of value effects, non-liquidity premium is widespread in the modern international capital markets, a direct impact on the classic capital asset pricing model to explain results, So look for new factors that affect asset prices becomes very necessary. In the study of micro-structure securities market, the study on the liquidity occupy a very important position, because liquidity is the stock market vitality. The liquidity of securities is the possibility of a large number of transactions in the basic premise of not changed the current asset prices in order to lower the cost of the rapid completion. Liquidity as a whole securities market is very important to the development of securities markets, a good market with high level liquidity is generally considered to provide real-time transactions, but little effect on the price of the market; high level liquidity provides investors the opportunities with the transfer and sale of securities, provides issuers the base of cash funding by means of the secondary market; liquidity will also affect the optimal ownership structure of listed companies.Since 1964, the capital asset pricing model (CAPM) will become mainstream in the research and practice in the capital asset pricing tool. Ross proposed arbitrage pricing theory (APT), trying to find more suitable for practical pricing models. APT believes that the Securities gains for the K factor (risk premium) is a linear function of these factors to describe the basic economic system variable factor, but the APT is not clear that the specific number of factors and content. However, access to 80 years later, many studies have found that the traditional CAPM can not explain the phenomenon, known as market anomalies (Anomalies), which is more typical, but also can be widely recognized anomalies in the so-called economies of scale, the book market value effect and long-term price reversal effect, short-term momentum effect and so on. Fama & French inspected the company's size, book value ratio and the beta of the explanatory power of stock returns and found that after controlling for company size and book value ratio of these two factors, beta does not explain stock returns. Based on this test results, Fama & French separate the size of the market value and the book market value factors with an extremely clever introduction of the scale factor, book market value ratio factor, the market portfolio factor, the three-factor model was constructed. Their empirical research shows that three-factor model is good at explain stock returns, but it is difficult to explain the meaning of the model variables from economics. The classic capital asset pricing model, arbitrage pricing theory and option pricing theory are assumed, "the trader's transaction will not impact on asset prices", thus ignoring the liquidity and liquidity risk exists. But in reality, the stock market is not a perfect market, there are various transaction costs, there is asymmetric information between investors, the real market is not a completely liquid market. Therefore, the introduction of mobile factors in the traditional asset pricing models is great practical significance.