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Impact of Financial Liberalisation on Stock Market Liquidity: Experience of China


  • Jess Lee

    (Research Department, Hong Kong Monetary Authority)

  • Alfred Wong

    (Research Department, Hong Kong Monetary Authority)


This paper assesses the impact of the recent financial reforms in China. Following the country¡¯s accession to the World Trade Organization, financial liberalisation has picked up considerable momentum. Measures introduced encompass deregulation in the banking sector and refinements in various financial markets, as well as allowing more freedom for Chinese and foreign investors to participate and interact domestically and overseas. Compared to other studies on financial liberalisation, this study focuses on a relatively narrower aspect of financial reforms namely, the impact on stock market liquidity. Using a panel data set drawn from the Shanghai stock market, we find a positive and significant liquidity impact associated with the recent round of measures, which reflects not only an improvement in capital allocation efficiency in China¡¯s equity market but, from a financial stability point of view, also a reduction in its vulnerability. The finding also provides evidence on one of the important channels in which financial liberalisation can be transformed into economic growth over time.

Suggested Citation

  • Jess Lee & Alfred Wong, 2009. "Impact of Financial Liberalisation on Stock Market Liquidity: Experience of China," Working Papers 0903, Hong Kong Monetary Authority.
  • Handle: RePEc:hkg:wpaper:0903

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    References listed on IDEAS

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    Cited by:

    1. Nartea, Gilbert V. & Kong, Dongmin & Wu, Ji, 2017. "Do extreme returns matter in emerging markets? Evidence from the Chinese stock market," Journal of Banking & Finance, Elsevier, vol. 76(C), pages 189-197.
    2. Anders Johansson, 2010. "China's financial market integration with the world," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 8(3), pages 293-314.

    More about this item


    Financial liberalisation; liquidity; dual-listed stocks; stock exchanges; fixed-effect panel regression;

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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