The Research On Stock Market Liquidity

The Subprime Crisis began in the USA and The Financial Crisis in the world which is triggered by it have led to the raise of risk premium and the shrunk of financial assets. In order to deal with the crisis, the financial authorities have done cash delivery and financial assistance, but everything is useless. Bloomberg have compiled the market liquidity index by the spreads of U.S. government bond yields and the inter-bank interest-rate, three-month interbank interest rate and the overnight lending, the bid-ask exchange rate. Some studies show that under the liquidity crisis, the price difference will expansion and the market liquidity index will increase rapidly, while the U.S. liquidity index rose rapidly from 90 to 310 between August 2007 and October 2007(This is more worse than the Asian Financial Crisis and the dot-com bubble burst) just prove the study conclusion.The risk aversion will increase rapidly under the crisis, the rapid expansion of the demand of low-risk assets puts the market liquidity under great pressure. In this environment, the stock market sharply diving, liquidity spiral down makes the value of financial assets rapidly shrinking, liquidity of the economy is rapidly shrinking. As a result, we realized that the study on the liquidity can not simply stop at the indicators, we also have to note two key elements:the rapid changes of the financial assets'total value and the risk preferences of overall economy. The Global Fund Manager'risk indicators do by Merrill Lynch suggest that, from mid-2007, the Global Fund manager'risk appetite was rapidly declining, the risk survey index dropped from-12 to-46 during July 2007 to September 2008. In fact, the rapid decline of market participants'bear of risk is the salient feature of risk premiums increased and overall liquidity crisis.In the rare liquidity crisis, the stock market of all the countries have experienced the ups and downs, investors'sentiment extreme instability and a lack of confidence is the real reaction of the stock market liquidity loss. On the other hand, the trading behavior of market participants is the ultimate source of liquidity, under the conditions, the investor retreating home, the little remaining confidence disappearance as the crisis spread. They feared, so they herd, leading to herding. At this time, the result of herding is that more investors fear to investing in risky assets, which led to a further shortage of liquidity.In this context, studying on the liquidity, investors'confidence level of oneself and interaction mechanism is particularly important. In this paper, we study the stock market liquidity from the investors'confidence level of oneself. I designed a set of transmission mechanism from investors'confidence level of oneself to the stock market liquidity, in order to make a reasonable explanation for the liquidity crisis, provide ideas for studying on stock market liquidity from a human perspective, and thus to provide theoretical support and policy recommendations for the improving of Chinese stock market liquidity.There are five parts of this article:1,Preface. First we introduced the background,sense and the purpose of this article; next, we simply expounded the current situation of the world in this field, pointed out that the research has been largely limited to discuss the investors' behavior on the turnover and the volatility, haven't extended to demonstrate the influence of turnover and volatility on liquidity, thus haven't established a complete theoretical models and transmission mechanisms from investors' behavior to the stock market liquidity;at last, we proposed the research ideas and the innovate point, showed the characteristics of the article.2,Theoretical analysis of stock market liquidity, the whole chapter is divided into two. Section I had gave a definition and math expression of liquidity. First, we summarized different scholars'definitions of the liquidity, and gave a precise definition of liquidity from real-time nature, width, depth, and flexibility(namely the liquidity'four-dimensional); then according to the connotation of liquidity derived the math expression of liquidity, which is the basis for later in modeling. SectionⅡis the measuring of liquidity, first introduced some different ways to measure liquidity, including:the price level measuring of liquidity, the time level and the trading frequency level; and then combine the advantages and disadvantages of different ways, the characteristics of Chinese stock market, trading mechanisms and transaction costs to choose the liquidity ratio to measure the Chinese stock market liquidity. 3,The mechanism from investors'confidence level of oneself to stock market liquidity, the whole chapter is divided into three sections. Section I is the definition of related concepts. We defined the investors'confidence level first, and indicate a high degree of self-confidence is easy to overconfidence, low is prone to herd behavior, and also summarized the causes of overconfidence and herding behavior. SectionⅡ, discussed the mechanism of investors'confidence level to factors which affect liquidity. The role of mechanisms are generally split in two main lines as follows:(1)a high degree of self-confidence, thus overconfidence, overconfidence put impact on the amount of investors and lead to information asymmetry, which affected the stock market liquidity through some ways; (2)a low level of self-confidence, thus herd behavior, herd behavior put impact on the amount and the ratio of investors, which affected the stock market liquidity. SectionⅢ, we discussed the impact direction and degree of factors(including the number of investors, information asymmetries, investor ratio) to liquidity with a simple model. Conclusion:the investors'confidence level through various channels to impact the stock market liquidity, however, the specific impact direction must be integrated into the stock market, market information asymmetry, investors' misconceptions and other factors.4,Chinese investors'confidence level and stock market liquidity, the whole chapter is divided into two. SectionⅠ, we analyzed the investors'confidence level of Chinese stock market, use the conclusions of others, Chinese Stock Market data and investigate to analysis the Chinese investors'confidence level, get a conclusion that the Chinese investors'confidence level is low, thus the herd behavior is very serious. SectionⅡ, we analyzed the liquidity level of recent years in Chinese Stock Market from the liquidity measuring indicators and the factors affecting liquidity. Conclusion:From October 2007 to October 2008, Chinese stock market liquidity is poor, and from October 2008 to now, its conditions have been better.5,The suggestions to improve Chinese Stock Market liquidity, the whole chapter is divided into two. SectionⅠ, we started the discussion from the fact that the Chinese investors'herd behavior is serious and put forward proposals to improve stock market liquidity, the recommendations include:create the trading system enabling to foster institutional investors, institutional investors' self-regulation and education and strengthening education of individual investment. SectionⅡ, from the fact that the information asymmetry in Chinese stock market is serious and put forward proposals to improve stock market liquidity, the recommendations include:improve the information disclosure system and strengthening the supervision of market players.