Research On Capital Asset Pricing Model Based On Liquidity

With the development of capital markets, the stock-returns is increasinglysubject to the financial sector, the accounting area as well as the general public’sattention. In the face of a variety of investment decisions, people need to assessthe returns of the assets which come from different investment options. Therefore,the asset pricing theories in this process have a very practical effect. However,the traditional pricing models ignored the liquidity factor. They explained theimperfect actual stock market encountered difficulties. Therefore, put liquidityfactor into the asset pricing model, has become a hot issue of doemstic andforeign scholars’ research.Because liquidity is an important factor in the stock price, under the contextof the Shanghai and Shenzhen stock markets, this paper researches the capitalasset pricing model based on liquidity. The paper firstly reviews doemstic andforeign research situation on liquidity and asset pricing models. Introduce thedefinition and dimensions of the liquidity, study the liquidity of the differenttypes of maeasurement methods, also analyze CAPM, APT and F/F three-factorasset pricing models’ features and hypothesis. Research the pricing mechanismand the status of liquidity in Shanghai and Shenzhen stock markets, and thenanalyze liquidity influenced the stock pricing from the aspects of stock market asa whole and the individual. Therefore, establish capital asset pricing model basedon liquidity, which is the important study. In this part, firstly define premise andprinciples, secondly followed by researching and analyzing to determine the F/Fthree-factor model as the base model, thirdly build the improved liquidity indexfor the Shanghai and Shenzhen stock markets by comparative analysis andimprovement, and finally establish LAFF four-factor capital asset pricing model.At the end of the paper, through empirical research by Shanghai A-share datas,concluded that stock-return is affected by market, company size, the book market ratio as well as liquidity factors together, the constructed model can explain thestock asset pricing.