Some Hypotheses on Commonality in Liquidity: New Evidence from the Chinese Stock Market
AbstractIn this paper, we examine four specific hypotheses relating to commonality in liquidity on the Chinese stock markets. These hypotheses are: (a) that market-wide liquidity determines liquidity of individual stocks; (b) that liquidity varies with firm size; (c) that sectoral-based liquidity affects individual stock liquidities differently; and (d) that commonality in liquidity has an asymmetric effect. Based on a two-year dataset on the Shanghai and Shenzhen stock exchanges comprising of over 34 and 48 million transactions respectively, we find strong support for commonality in liquidity and a greater influence of industry-wide liquidity in explaining liquidity of individual stocks. Moreover, our results suggest that of the three main sectors – financial, industrial, and resources – industrial sector’s liquidity is most important in explaining individual stock liquidities. Finally, we do not find any evidence of size effects, and document an asymmetric effect of market-wide liquidity on liquidity of individual stocks.
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Bibliographic InfoPaper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2010_10.
Date of creation: 16 Jul 2010
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Commonality in Liquidity; Asymmetric Information; Size Effects; Chinese Stock Exchange.;
Other versions of this item:
- Paresh Kumar Narayan & Xinwei Zheng & Zhichao Zhang, 2011. "Some hypothesis on commonality in liquidity: New evidence from the Chinese stock market," Financial Econometics Series 2011_11, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-24 (All new papers)
- NEP-MST-2010-07-24 (Market Microstructure)
- NEP-TRA-2010-07-24 (Transition Economics)
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