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An Empirical Study of Liquidity and Return Autocorrelations in the Chinese Stock Market

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  • Chen Yang

Abstract

We investigate how the Nontradable Share Reform (NTS Reform) affects cross-sectional relations between liquidity and stock return autocorrelations using a new illiquidity measure that measures more precisely the liquidity of the Chinese stock market. We find that winner and loser portfolios exhibit different return autocorrelations before and after the NTS Reform. All return autocorrelations are stronger for high-illiquidity portfolios after controlling for turnover ratio. We use market capitalization to determine the extent of speculative trading and assume that return reversal (continuation) accompanied by high illiquidity occurs in large (small) stocks. Our empirical results are remarkably consistent with our hypothesis after the NTS Reform. Copyright Springer Japan 2015

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  • Chen Yang, 2015. "An Empirical Study of Liquidity and Return Autocorrelations in the Chinese Stock Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 22(3), pages 261-282, September.
    • Handle: RePEc:kap:apfinm:v:22:y:2015:i:3:p:261-282
    DOI: 10.1007/s10690-015-9203-5
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    Cited by:

    1. Zhang, Tianyang & Lence, Sergio H., 2022. "Liquidity and asset pricing: Evidence from the Chinese stock markets," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    2. Li, Shaoyu & Zhang, Teng & Li, Yingxiang, 2019. "Flight-to-liquidity: Evidence from China's stock market," Emerging Markets Review, Elsevier, vol. 38(C), pages 159-181.

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    More about this item

    Keywords

    Information asymmetry; Liquidity; Return continuation; Return reversal; G11; G12;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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