Research On Liquidity Level Premium Based On Chinese Stock Market

The liquidity of the stock market in most of the time is good, and therefore many people ignore the importance of liquidity, but in fact liquidity is very important in the field of asset pricing, the role of liquidity in asset pricing is one of the most popular research fields in recent years. Research of the liquidity level premium in foreign countries is relatively mature, and the domestic research of the liquidity level premium is also in rapid development.In this paper, CAPM, Fama-French 3-factor model and Carhart 4-factor-model are applied to study the liquidity level premium in China's stock market. It is found that there is a liquidity level premium in China's stock market and the liquidity level premium exists in both the bull market and the bear market.This paper is divided into 4 chapters, the first chapter is introduction. The second chapter is literature review. The third chapter is empirical research. The fourth chapter is conclusions and outlook. Through the study and analysis of the liquidity level premium in China's stock market, we get the following conclusions:There is a liquidity level premium in China's stock market. At the same time, we also verify the existence of market risk premium, scale premium and value premium in China's stock market. CAPM, Fama-French 3-factor model and Carhart 4-factor-model can not fully explain the of return China's stock market, but the effectiveness of FamaFrench 3-factor model and Carhart 4-factor-model is higher than CAPM. CAPM has a weaker explanatory power on the poor liquidity stocks compared to the good ones, while there is no significant difference in the Fama-French 3-factor model and Carhart 4-factor-model for both ones.There is a liquidity level premium in both bull and bear market. The previous literatures used monthly data to test whether there is a liquidity level premium in the bull market and bear market. In this paper, we use the monthly data to test the bull market and bear market. The results show that there is no liquidity level premium in both the bull market and the bear market. However, due to the short time of the bull market and bear market, the monthly data used to test is less, the result is not reliable. On this basis, this paper first use daily data to test the bull market and bear market, the result shows that both the bull market and bear market exists the liquidity level premium, this enhances the robustness of the conclusions of this paper.Add new stocks to the test will not affect the result of the test. The existing literature usually test the stocks listed before the beginning of the sample period and then fixed them, and only use these fixed stocks to establish the portfolios. But the market risk factor, scale factor, and value factor used in the test contains the contribution of the new stocks, the result might produce deviation. On this basis, we add the new shares to the test and use them to establish the portfolios, this enhance the reliability of the conclusion.On the basis of existing research, we apply some new methods to expand the research ideas, which provides a reference for the further research in related fields.