Analysis Of Stock Liquidity’s Function Mechanism Affected By Market Yield

The publish of “transaction costs” of Demsetz,opened up the security price research method from the market microstructure.Scholars,however,are more focused on the role of liquidity on the asset pricing,the role of asset prices on liquidity is the lack of attention.In fact,a lot of market situation show that bad stock market performance leads to liquidity crunch even dried up.Whether this has universality and what is the cause are worth to research.Taking A-share stock data in the nearly ten years in the Shanghai stock exchange as the research sample,using the entity fixed effect model and choosing trading volume of Treasury bonds repo,the interbank interest rates,the index returns difference between corporate debt and national debt and the index return of bank as proxies to show out whether the liquidity providers face financing constraints,this paper analyzes the influence of market yields on stock liquidity and theirs’ function mechanism.Therefore,this research plays a supplementary role on the market microstructure theory and it is innovative to a certain extent.Through the empirical analysis,this paper made the following core:(1)Market yields rise result in stock liquidity rising,and market yields down lead to stock liquidity squeeze,and the degree of squeeze is strengthened when the market yields are negative.Verified by empirical analysis,this is derived from the fact that when market yields decline,liquidity providers face more financing constraints,thus reducing the supply of liquidity,and causing the decline of liquidity.Compared with earnings decline,the market further losses result in investment subject faci ng more financing constraints,making the liquidity providers greatly reduce the supply of liquidity,thus causing substantial liquidity crunch.(2)When using the decline of trading volume of Treasury bonds repo and the rise of interbank interest rates to show that the liquidity providers may face certain financing constraints,the extent of stock liquidity declines effected by market yield declines is strengthened significantly.Banking financial institutions facing losses reflects the deterioration of loan conditions.Such of financing constraints lead to the biggest extent of stock liquidity declines effected by market yield declines Therefore,when market yield appears to a big drop,which leads to stock liquidity squeeze severely,it can reduce the extent of stock liquidity declines effected by market yield declines by the regulation in the repo or interbank market in a timely manner and risk management of bank funds to improve the investment subjects’ financing constraints.