Fama-french Model Modified With Stock Liquidity

The liquidity risk of assets usually refers to the risk that the transaction cannot be completed in time with a lower transaction cost.For all investors in the stock market,the liquidity risk of the assets cannot be ignored.The availability of sufficient liquidity is an important criterion for measuring whether the capital market is operating well.Liquidity has been generally considered as a capital market.The core factor.The sample space for empirical research in this paper is monthly transaction data for China's A-share market from January 2000 to January 2018.This paper mainly has the following research priorities:(1)Using GRS indicators and panel regression results to test whether the explanatory power of the Fama-Frecnh three-factor model and five-factor model introduced with liquidity factors has been improved.(2)Based on panel analysis results,verify whether there is a liquidity premium in China's A-share market.This paper analyzes the coefficients of liquidity factors in panel regression results to analyze whether the liquidity premium phenomenon is significant and the liquidity risk premium is strong or weak.(3)On the basis of the above analysis,analyze the performance of liquidity premiums in large-cap companies' portfolios of small-cap companies,and analyze the Fama-French model that introduces liquidity factors for large-cap value companies and small-cap companies' stocks.The ability to explain the expected rate of return is the same.After empirical analysis,this paper has reached the following conclusions:(1)The empirical analysis shows that the liquidity factor IMF is more capable of explaining the expected return rate of assets than the HML,CMA,and RMW.The GRS test analysis results and the panel regression intercept analysis show that the Fama-French model adjusted by the liquidity factor has been significantly improved compared with the original model.(2)China's A-share market has significant scale effect and liquidity premium.Panel regression analysis showed that the regression coefficient of the liquidity factor IMF was significantly positive at 1%confidence level,and after eliminating the mutual influence of factors,the real liquidity premium strength increased significantly.(3)The analysis results of the GRS test and panel regression intercepts show that the liquidity premium phenomenon is more pronounced in the large market capitalization company group.(4)In this paper,regression factors were constructed by two groups.GRS test and panel regression analysis were performed based on the factors constructed in different ways to obtain consistent regression results.This indicates that the conclusion of this paper is robust.