Empirical Test On The Liquidity-adjusted Capital Asset Pricing Model In China

Liquidity in financial is widely recognized as a factor affecting the allocation of financial resources in stock markets and the research on liquidity has become an important issue in asset pricing. However,most of the asset pricing models are established on the assumption of no risk environment and ignoring the important role of liquidity risk in asset pricing at present.The main purpose of this study is to investigate the relationship between liquidity risk and stock's excess return in Chinese stock market,and empirically analysis the applicability of the liquidity-adjusted asset pricing model in our stock market.At first,we analyze the characteristics of Shanghai stock Exchange in timesectional and cross-sectional.We find that liquidity is the most volatile factor among all factors,and the instability of liquidity is increasing by year.In our work,The liquidity risk factors " to # are modified by the bid-ask spread factor.We combined the F-F three factor model and risk liquidity to construct LACAPM model,and then analyze it in Shanghai stock market.The results show that the liquidity risk and the pricing model works well in Shanghai stock market,However,liquidity risk $ and # will lose its function of explaining excess returns with the grows of size.As the bid-ask spread index is a frequency index and the measurement data is huge.The next step,we use the high-low spread index to replace the bid-ask index to calculate liquidity to simplify the data processing.And then the model can be analyzed in a wider range of time.With the financial crisis in 2008 as the list,we use the model to verify the impact of liquidity risk on excess returns before and after the financial crisis.The results show that the liquidity risk premium effect in bear market is stronger than that in bull market.In addition,from the empirical results in different industries,the liquidity risk has a better explanation of the excess returns in the iron and steel industry,agriculture,forestry and animal husbandry whose liquidity is low and cyclical.In order to eliminate the chance of the experiment,this paper uses two different liquidity index to carry out the experiment,and find the same result.Finally,by using the complex network technology we find that asset whose liquidity is low has a lower degree.The liquidity risk has an industry effect on the mutual influence,and liquidity risk is easy to influence each other in the same or related industries.