Abstract: The study of sources of liquidity risk and premium channels helps investors to understand and manage liquidity risks. This paper selects 300 stocks in 144 months from January in 2006 to December in 2017 in Shanghai and Shenzhen stock markets as a sample, uses the liquidity-adjusted capital asset pricing model(LCAPM)to analyze the liquidity risk premium and premium channels in Chinas stock market. The results show that compared with the market risk, the liquidity risks have a more significant impact on the expected return of Chinas stocks, and the sensitivity of individual stock liquidity to the market return is the most important among the three liquidity risks, which is an important channel of liquidity risk premium. And there is little difference between the influence of two other channels. At the same time, the phenomenon of “flight to liquidity” also exists in the Chinese stock market. When the overall liquidity of the market declines, investors will choose to transfer investment funds from stocks with low liquidity to stocks with high liquidity, making the price of stocks with low liquidity drop sharply.

Key words: LCAPM, liquidity cost, liquidity risk, risk premium