Research On The Relationship Between The Liquidity And Volatility Of China's Stock Market

Financial market microstructure theory, which is to research the characteristics and internal rules of the financial market, has become one of the focus issues in the research of financial field. And the liquidity, volatility, which run through the entire market microstructure theory, are used to design the market structure and evaluate whether the market structure is perfect.The core of the paper is the relationship between liquidity and volatility. Using the high-frequency data, the paper checks their relationship in China's market and researches the impact factors. At last, the paper analyzes the mechanism that how the active trading and the firm size of a company impact the relationship between liquidity and volatility, with a view to provide some reference for improving China's stock market.This paper can be divided into three parts. The first part includes Chapter One and Two. This part introduces the background of the research, its significance and the overview of the Financial Market Microstructure Theory. The second part is the core of the paper, comprises Chapter Three and Four. It first uses the high-frequency data to do a statistical analysis of the characteristics of the liquidity and volatility in China's stock market, and then checks the relationship between the liquidity and the volatility empirically and actually. The result got in the actual market is disobedient with the classical theory, and the paper explains the reason from the perspective of micro-structure. Then it gives relevant case evidence to research the two factors that impact the relationship between liquidity and volatility, which are the characteristics of market and the characteristics of company. And this part also analyzes the mechanism that how the active trading and the firm size of a company impact the relationship between the liquidity and volatility. The third part is the policy recommendations and conclusions. The paper concludes with the summarization, basing on the empirical analysis above, it provides several policy recommendations for the development of China's stock market.