Chinese Stock Market Liquidity Impact Studies, The Rate Of Return

Liquidity premium theory holds that, the liquidity of one asset is an important factor in the process of asset pricing, and the asset of low liquidity is expected to high returned, as well as the asset of high liquidity is expected to low returned. At present, whether China's stock market exists liquidity premium or not still does not reach an agreement.The paper choose the stocks that began trading before June of 1994 in Shanghai and Shengzheng A stock market as research sample, 100 stocks traded from June of 1994 to June of 2008 were regarded as the research objects. We try to investigate the effect liquidity has on returns in the long term. In order to meet the study of long-term liquidity affecting returns, we established a new ratio called AL to measure liquidity, and in accordance with the type of data characteristics, we eatablish the panel data models from the cross-sectional and time series point of view. We do not only study the impact of liquidity on returns, but study small firm effect, BM ratio effect in China's stock market, and if the proportion of circulating shares affect returns or not. The following conclusions are obtained:(1)Liquidity of different stocks has no impact on returns, and liquidity premium does not exist in cross-section from the long-term view in China's stock market.(2) In the time series, from the perspective of data on inspection, liquidity makes a significant impact on returns, but varies over time. Liquidity has a strong impact on lag-one-month returns and lag-two-months returns. However, when it lags one month, liquidity premium exists in China's stock market, as well as when it lags two months, it does not exist.