Study For Liquidity Premium Of Illiquid Share In China

This thesis probes the liquid premium of the illiquid share in China's listed companies. The thesis constructs indexes of liquidity of national securities market, such as tightness, structure resiliency and depth, based on the equilibrium price of criterion share, the trade price and volume of liquid and illiquid share. Due to strong asymmetry information, this thesis utilizes a listed company with same illiquid share as liquid share as an example, to illustrate the mechanism the participants estimating the liquid premium of the illiquid stock in their investment activities. It suggests that the Bayesian learning process can be employed to characterize the investors'dynamic adjustment that the participants extract and learn from information which has been forming in exchanges of illiquid and liquid share, and proposes that the expectation of the liquid premium would converge at the intrinsic value under perfect information whether the distribution of the random variable on the liquid premium of the illiquid stock is separate or continuous. However, according to the hypothesis of neutral risk and the no-arbitrage principle, this thesis discusses the equilibrium of no-arbitrage between the older and the fresh holders of the illiquid share at some time point when the illiquid stock is available, with premise that the former holders of the liquid share should be compensated with stock equity when the illiquid share is available. The existent illiquid and liquid share are replicated separately by a set of ideal basic securities with their value of 0 or 1 representing two opposite states; then the pricing model is set up, which is applicable at the time spot of illiquid share available bringing to bear the pricing technology of state price. Combining the trade price of the liquid and illiquid stock in a same company, the pricing model in this thesis can make a price for the illiquid share which is being current, after calculating the set of radixes of the national entire capital market, which can be calculated by only one company can represent the whole market among the all deciding to make their illiquid share available in the secondary securities market. In the end, this thesis verifies the illiquid discount of illiquid share and its'resulting factors through the data produced by the auction and private transfer of illiquid stock along with the restricted share discount approach in the international literatures. The matched financial data for per element of sample is the annually fiscal data at the middle of fiscal year designed by the research, the dependent variable is the liquid premium of the illiquid share, and the independent variables are 28 on the characters of regulation change, trade and company selves. During the multivariate linear regression analysis, before taking the stepwise regression method this thesis observes the problems of collinearity, different residuals and sequence correlation using backward regression method. The conclusions of empirical analysis are as follows: on the average, the price discount in private transfer is higher about 6.61% than in auction of illiquid share trade because the more information transparence in auction; the flight-to-liquidity premium resulted from the regulation change is 8.61% of the A-share price at the same time point of illiquid stock being trade from the private transfer sample which can represent the market level; there are significant correlation between the illiquid discount and the regulation change, the characters of the trade manner and the cross-differences of the companies, such as, the participants more prefer the illiquid shares of the sort of company which the ratio of illiquid shares is higher and adopts the cash dividend policy not the share; there are significant differences of the value of illiquid stock between the companies operating well and the counterparts; and the effects of longer listed duration and higher net assets per share are proved; and the other factors, for instance, tax, size, major business, EPS and ROE in different degree affect the illiquid discount in different manner illiquid stock exchanges.