Empirical Study on the Impact of Liquidity Factor Turnover Rate on Stock Returns: Based on CAPM and Fama-French Models

Sijie Guo ()
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Sijie Guo: Guangdong University of Finance, School of Finance and Investment

A chapter in Proceedings of the 2025 International Conference on Financial Risk and Investment Management (ICFRIM 2025), 2025, pp 425-433 from Springer

Abstract: Abstract This study aims to investigate whether the inclusion of turnover rate (HSL) as a liquidity factor can enhance the explanatory power of the Capital Asset Pricing Model (CAPM) and the Fama-French three-factor model (FF3) in predicting stock returns. This issue is of critical importance in academic research, as it could reveal the impact of market microstructure on asset pricing and provide a new perspective for investment decisions. The author use regression analysis and stock data from six technology companies (Apple, Microsoft, Amazon, Alphabet, Tesla, Plug Power) between June 2016 and October 2020, including excess returns, market excess returns, company size, book-to-market ratio, and turnover rate. The results show that the inclusion of HSL significantly increases the R-squared value of the models, indicating that turnover rate is an important factor influencing stock returns. This finding has practical implications for investors considering liquidity indicators when evaluating stocks and provides a theoretical basis for regulatory authorities to monitor market manipulation behavior.

Keywords: Turnover rate; liquidity; CAPM; Fama-French model; asset pricing (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-748-9_47

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DOI: 10.2991/978-94-6463-748-9_47

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