The Relationship Between Stock Liquidity And Expected Return

In the capital market, liquidity means the capacity to trade fast and cost less to make the trade. A high liquid stock means that to trade large amount of this stock do not need to bargain, or cost much to find counterparty. What’s more, the trade does not make difference to the stock price.The vanishing of liquidity causes the stock market crash more fierce. And the development of capital market makes investors concern more about the efficiency of the trade, what makes they require the high level of liquidity. That’s the realistic significance of the research of liquidity. On the other side, after the proposition of CAPM, scholars have been trying to improve the strictly-assumed model. Since the year1986, when Amihud and Mendelson use bid-ask spread to measure the liquidity and find the liquidity premium, scholars from various countries has been studying on the subject of liquidity and liquidity pricing. Based on the previous researches on the subject of liquidity and stock return, we come forward that different liquidity measure impact on stock yield may be different, and at different market shape the impact of liquidity to stock yield may also be different. In order to verify the above conjecture, and to study the liquidity on the Shenzhen GEM market, we selected the csi300index sampled stocks and300shares from the gem as the samples of main market and samples of the growth enterprise market. After setting up L-CAPM and using unbalanced panel regression, we find that:1) Liquidity premium phenomenon exists both in the main board and gem market. And at the waving period and declining period in motherboard market, liquidity premium phenomenon is more obvious than the rising period.2) Different liquidity index did influence differently on stock yields:the influence of ILLIQ to stock return is relatively weak, while the influence of turnover rate or trading volume to stock return is much more significant. The result shows that the liquidity depth influence more on stock return than liquidity width in China.3)The influence of liquidity to stock return on different market is also different:First of all, ILLIQ impacts stock returns more on the motherboard market than on the growth enterprise market; secondly, the regression coefficient of trading volume on GSM is greater than on the motherboard market, while the regression coefficient of turnover rate on GSM is smaller than on the motherboard market. This means that the impact of trading volume to stock return on GSM is greater than on the motherboard market, while the impact of turnover rate to stock return on motherboard is greater than on the GSM market.