A Study On Liquidity Of Stock Market In China

A frequently quoted objective of stock exchanges around the world is to provide a liquid market, where liquidity is defined as the ability to convert shares into cash (and the converse) at the lowest transaction costs. Based on previous study, this paper employs a new measure of liquidity to do a systematic study on the liquidity in Chinese Stock Market. Include the current state of stock market liquidity, the main factor of market microstructure's influence on liquidity, the great event of stock market's impact one liquidity and the relationship between liquidity and returns. The following conclusions are obtained.①The liquidity of bull market is better than bear market; there is not any definite relation between share price and liquidity; Industry shares have better liquidity than others; there exists positive relation between market liquidity and the size of circulation shares.②Of the great event of stock market policy, if the event has relation with the transaction cost, money supply (or the market participator) can have significant influence on market liquidity. There are many events on the transaction rules and regulations, but only those which will bring direct change on the way and action of transaction can impact on market liquidity significantly. The effect of policy to improve information transparency has the similar influence as transaction regulations, only when the policy can improve the quality of information greatly, it can improve market liquidity.③Different from the mature market of the developed countries, there is no"liquidity premium"in stock market in China. What's more, there exists positive relation between market return and liquidity. And there is no definite relationship between the coefficient and the returns. Liquidity is not the Granger Cause of market return, but market return is the Granger Cause of liquidity. We suppose that the undeveloped market environment and unreasonable behaviors of investors'cause the abnormal relationship of liquidity and return in Chinese stock market.