| The Chinese Growth Enterprise Market(GEM) which is found for adjusting economic structure and promoting innovative enterprises has been running for nearly 5 years since October30,2009.The phenomenon of high P/E ratio and high valuation in its infancy cause the wide attention of the capital market. Since the financial crisis in 2008,C hinese stock market remains in the doldrums. While the stock market is still in the downturn in recent years, the GEM has done better than the main board market. For such a technology- heavy,high- growth and high risky stock market, it is significant to do research for its pricing mechanism.This paper selected the GEM as the research object and used the Fama-French Model(FF model) to test that if the model could do a good job in GEM. At the sa me time, the paper also studied the application of FF model in GEM’s main industries. In addition, based on the liquidity perspective, we verified the existence of liquidity premium in the GEM. The paper compared the original three- factor model with the new models which were modified with a liquidity factor to provide the theory basis for the GEM market pricing.This paper made regression analysis and conducted detailed comparative analysis between different groups classified by the companies’ size and B/P ratio and their liquidity using the original FF model and the modified models. The main conclusions are as follows:(1)The CAPM is applicable to the GEM in C hina.(2)The FF model can apply to the GEM to some extent and we found the existence of the size premium and B/P premium, however, the latter is not as significant as the former.(3)The three-factor model could not explain the media industry but could do a better job in the electrical equipment industry, the electronic industry, the chemical industry and t he machinery and equipment industry which present obvious size and B/P premiums. For the computer industry and the biological medicine industry, the modified two-factor model omitting the B/P ratio is more suitable than FF model because these two industries both showed obvious size premium but no the B/P premium.(4)The paper used the modified Amihud illiquidity index to measure the liquidity premium of the GEM and found that the liquidity premium had high degree of correlation with the size premium. In the industry analysis, no matter the extension model which added the liquidity factor to the applicable model or the modified model which used the liquidity factor to replace the size factor could not enhance the original models accuracy. |
