A Revision Of Asset Pricing Model With Liquidity Factor And Its Empirical Study In Chinese Growth Enterprises Market

The general definition of liquidity can be understood as:if an asset can be trade largely at a low cost in a certain period without apparent price fluctuations,it is liquid.Since Amihud and Mendelson(1986)proposed the theory of liquidity premium(theory of A-M),namely,the lower liquidity of the assets,the higher of its expected return is,the liquidity of the assets is an important factor of the asset pricing.The existence of the liquidity premium phenomenon poses challenges to the traditional asset pricing model.Researches about liquidity premium mainly concentrate on main board market.The growth enterprise market accepts innovative or growth companies with much operating uncertainty,risk pricing model of motherboard are not necessarily appropriate for the GEM enterprises,valuation error will affect the market stability and liquidity of the stocks.So this article try to explore a better asset pricing model for GEM in our country,looking for risk factors influencing the growth enterprise market stocks.This paper improves Bruce(2008)hree factors model containing the market risk factor,scale factor and liquidity factor,with the relationship between the risk factors into consideration.This paper uses GEM enterprises from January 2010 to December 2014 as a sample to test the improved model.In order to get a more solid conclusion,this paper adopts two kinds of liquidity measures,constructing three ways portfolios.In the test of the liquidity premium,this paper adopted the turnover and improved the illiquidity ratio as a measure of liquidity Through the empirical analysis,this paper get the following conclusion:Our adjusted model can well explain almost all the excess returns,performing better than traditional pricing model.We also find the liquidity factor has stronger influence on small companies.Through the test,we found that the liquidity premium phenomenon and the scale effect do exist in the GEM.Through the test of CAPM model and Fama and French three factors model,we find that neither of the two models can explain the low liquidity portfolios,which means there must be other risk factors involved.