Abstract: In this study, to examine whether aggregate market liquidity risk is priced in China Stock Market, we build a three-factor asset pricing model, in which market risk and two kinds of liquidity risk are inchided. The two kinds of liquidity risk mean market return sensitivity to market aggregate liquidity, which risk is measuredby their covariance, and volatility of market aggregate liquidity, which risk is measured by its variance. The findings show that there are both market risk premium and liquidity risk premium,while risk premium of market return sensitivity to aggregate liquidity is more significant in the two kinds of liquiditv risk.

Key words: liquidity risk, market risk, risk premium, asset pricing