Measuring risk in the stock market is one of the major challenges of modern finance. There is a controversy over which risk premiums should be considered to price assets. This study evaluates the ability of the CAPM and Fama-French Three Factor model to explain stock returns in the empirical Chinese Growth Enterprises Market ground. Applying Fama and French approach, the author constructed six portfolios by size and book to market ratio. Using weekly returns from January 2012 to December 2012, the excess returns for each portfolio were regressed on market, scale and value factors by using time series method. The findings prove the asset pricing models’ weak explanatory power in the Chinese GEM. In addition, this study considers the liquidity factor that is constructed by using traded volumes/ outstanding shares and then sorts six portfolios by size and liquidity. The empirical results show that such a factor is significant in Chinese Second Board Stock Exchange. This article concludes that neither the CAPM nor Fama-French Three Factors models is clearly significant for explaining stock returns on the Chinese Second Stock Exchange, and the introduction liquidity factor will make a more universal asset pricing model in the emerging stock markets.