| Liquidity commonality represents the correlation between the liquidity of two types of financial assets(Chordia et al.,2000;Huberman and Halka,2001;Brockman and Chung,2002).When one of the financial assets represents the market portfolio,the liquidity commonality is also called system liquidity.From the macro level of financial market,the increase of system liquidity will lead to system liquidity risk,which will lead to a larger scale of system risk.From the world financial crisis in 2008 to the "financial tsunami" of "thousand shares down" in 2015,there is a common feature that the liquidity of securities in the market tends to dry up quickly and consistently in the same period,which is an extreme manifestation of the commonality of liquidity and a specific manifestation of systemic liquidity risk.It can be seen that liquidity commonality will have a significant impact on the stability of the financial market.Moreover,from the micro level of the financial market,liquidity commonality reflects the correlation and common change of liquidity,and such common change is usually caused by the common fluctuation of position level,which is essentially the common change of trading volume,interest rate and volatility.Among them,the intertemporal response of trading behavior to general price fluctuation will lead to the change of trading volume,and the change of trading volume will lead to the change of optimal position level,and then lead to the common change of the bid-ask spread,trading depth and other liquidity indicators of individual stocks.At the same time,because the cost of holding position usually depends on the market interest rate,the change of interest rate will cause the common change of the cost of holding position of various assets.Finally,volatility determines the risk of holding positions.Changes in market volatility will lead to common changes in the transaction costs of assets.In addition,at the level of risk premium,market liquidity commonality is non-diversifiable as an integral and important component of liquidity risk.Therefore,market liquidity commonality can become part of the systematic risk,thus creating a risk premium that has an impact on the return of the asset.Therefore,a correct understanding of the commonality of liquidity and a systematic study on the influencing factors,driving mechanism and risk premium of the commonality of liquidity will not only maintain the stability of the financial market for financial regulators at the macro level,provide a new regulatory perspective for preventing and identifying systemic risks,but also provide an important starting point for financial institutions to effectively identify and prevent liquidity risks at the micro level.It provides empirical reference for investors to carry out systematic and scientific liquidity management and more reasonable asset allocation.Based on the actual situation of Chinese securities market,after systematically combing the research results related to liquidity commonality,this dissertation mainly focuses on the transaction demand hypothesis,capital supply hypothesis and LCAPM model of liquidity commonality from four levels.First,this dissertation uses Chinese A-share data to empirically test and analyze the key factors affecting liquidity commonality in the two types of theoretical hypotheses.On the one hand,to verify whether the two hypotheses can be supported by empirical evidence in the Chinese market,so as to confirm the existence and applicability of the two hypotheses.On the other hand,there is a systematic understanding and grasp of the existence and influence mechanism of liquidity commonality in Chinese market at the global level,and then the key influencing factors with significant economic significance are screened out for further analysis in the follow-up study.Specifically,this dissertation draws lessons from the previous research and determines the research variables from the demand perspective and supply perspective according to the two kinds of hypotheses.By constructing a two-way fixed effect model,this dissertation observes the influence of these factors on liquidity commonality,analyzes and compares its economic significance,and verifies the relevant hypotheses of the two types of hypothesis.Second,on the basis of the overall analysis,considering that institutional ownership may have a heterogeneous impact on liquidity commonality due to differences in institutional types,therefore,there is a further in-depth study on the impact of individual investor ownership in mutual fund ownership on liquidity commonality.Since the ownership of individual investors essentially reflects the trading behavior of mutual funds under the influence of the needs of individual investors,this dissertation,from the perspective of individual investors,re-examine the influencing factors and driving mechanism of liquidity commonality around the characteristics of this trading behavior.Specifically,first of all,this dissertation analyzes the positive impact of individual investor ownership on liquidity commonality and uses exogenous shocks formed by these events of deletions from an index on individual investor ownership to observe and confirm this positive impact of changes in individual investor ownership on liquidity commonality.Secondly,the trading behavior represented by individual investor ownership may be driven by the purchase and redemption flow of individual investors to mutual funds.Furthermore,investor sentiment may affect the funding flow of individual investors by influencing their investment decisions.Therefore,the individual funding flow and investor sentiment may change the demand pressure that affects the investment decisions of mutual funds,which in turn leads to changes in the ownership of individual investors and drives the commonality of liquidity.Accordingly,this dissertation analyzes the driving mechanism of liquidity commonality from two channels: funding flow and investor sentiment.It is found that the large-scale inflow and outflow of individual funding flows in the mutual fund industry play a significant role in driving the commonality of liquidity.Furthermore,it is found that investor sentiment drives liquidity commonality through two paths that affect individual funding flows to mutual funds and the trading behavior of individual investors in the A-share market.Third,similar to the second level,considering the existence of heterogeneity,this part makes a further analysis of the impact of ETF ownership on liquidity commonality.First of all,using ETF ownership(stock)which can reflect the trading behavior of institutional investors in the primary market,this dissertation analyzes the impact of ETF ownership on liquidity commonality.This kind of influence essentially represents the influence of arbitrageurs’ trading behavior on liquidity commonality.Secondly,considering the possible endogenous problems of the impact of ETF ownership on liquidity commonality,the positive relationship between the two is further confirmed through the external events called out by the index.Finally,from the perspective of arbitrage,this dissertation studies the driving mechanism of liquidity commonality through the two channels of ETF funding flow(increment)and investor sentiment respectively.The study found that this driving mechanism essentially reflects that arbitrageurs can make use of the effective spreads generated by investor sentiment to carry out arbitrage,so as to drive the commonality of liquidity.Compared with previous studies,this dissertation analyzes the impact of investor sentiment on arbitrageurs’ trading behavior from the perspective of arbitrage for the first time,and finds that arbitrageurs can use investor sentiment to implement effective arbitrage,thus restraining the impact of individual investors’ emotional irrational trading behavior on the market.Fourth,since liquidity commonality is a non-diversifiable systematic risk and has an impact on asset prices,this dissertation investigates the risk premium of market liquidity commonality based on the liquidity-adjusted CAPM model(LCAPM)constructed by Achaya and Pedersen(2005).According to the LCAPM model,the liquidity risk is divided into three parts: the covariance between the illiquidity of the asset and the illiquidity of the market,the covariance between the illiquidity of the asset and the illiquidity of the market,and the covariance between the illiquidity of the asset and the return of the market.The research focuses on liquidity commonality.First of all,the combination of different liquidity levels and liquidity volatility is constructed and the empirical test is carried out by using Fama-macbeth regression.The results show that compared with CAPM model,LCAPM has better explanatory power to the risk of liquidity commonality and can better fit asset returns.Secondly,based on different groups with different company size,the robustness test is carried out using the same method.It is found that the explanatory power of LCAPM at the stock level is stronger and its significance is significantly improved.In summary,the marginal contributions of this dissertaion are: first,we isolate individual investor ownership from mutual fund ownership and investigate the relationship between individual investor ownership and liquidity commonality in the Chinese market from the perspective of individual investors,and the indirect mechanism of investor sentiment driving liquidity commonality.It is found that individual investor ownership has a statistically and economically significant positive effect on liquidity commonality,and the marginal effect on liquidity commonality increases as investor sentiment increases.Second,we construct ETF ownership that reflects the trading behavior of institutional investors,and find that ETF ownership has a positive effect on liquidity commonality in the Chinese market in general.Moreover,the first study investigates the driving mechanism of the industry-wide net fund flow(hereinafter referred to as "net flow")of subscription and redemption on liquidity commonality from the perspective of ETF arbitrage,and finds that when the net flow is positive,arbitrage behavior has a negative driving effect on liquidity commonality;when the net flow is negative,arbitrage behavior has a positive driving effect on liquidity commonality.Finally,the driving mechanism of investor sentiment on liquidity commonality is investigated from the perspective of ETF arbitrage.It is found that the impact of investor sentiment on ETF ownership eventually constitutes an indirect negative driver of liquidity commonality under the effect of arbitrage mechanism.This suggests that arbitrageurs represented by institutional investors in the primary market of ETFs are able to take advantage of investor sentiment to trade inversely and thus realize arbitrage. |
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