Liquidity and Asset Pricing Bubble

This paper studies the behavior laws and policy implications of liquidity premium in traditional theoretical frame of capital asset pricing model.The volatility of β that is related to liquidity show s cross-section scale effect.Excessive increase in liquidity risk of asset illiquidity relative to expected return will lead to abrupt drop of market return.The extent of drop is related to the scale of bench mark risk asset of market liquidity pricing.If bench mark of market liquidity pricing is the return of large-scale risk asset market return drops largely when market liquidity tends to zero.If bench mark of market liquidity pricing is the return of small-scale risk assets variations in market return are relatively stable when market liquidity tends to zero.The abovementioned conclusions are clear about the importance of liquidity and financial market microstructure in the field of control and regulation of monetary policy.