TY - JOUR
T1 - Some hypotheses on commonality in liquidity
T2 - new evidence from the Chinese stock market
AU - Narayan, Paresh Kumar
AU - Zhang, Zhichao
AU - Zheng, Xinwei
N1 - Publisher Copyright:
Copyright © Taylor & Francis Group, LLC.
Copyright:
Copyright 2015 Elsevier B.V., All rights reserved.
PY - 2015/9/3
Y1 - 2015/9/3
N2 - In this article, we examine four specific hypotheses relating to commonality in liquidity on the Chinese stock markets. These hypotheses are (1) that market-wide liquidity determines liquidity of individual stocks; (2) that liquidity varies with firm size; (3) that sectoral-based liquidity affects individual stock liquidities differently; and (4) that commonality in liquidity has an asymmetric effect. Drawing on a two-year data set on the Shanghai and Shenzhen stock exchanges comprising over 34 million and 48 million transactions, respectively, we find strong support for commonality in liquidity and a greater influence of industry-wide liquidity in explaining liquidity of individual stocks. Moreover, our results suggest that of the three main sectors - financial, industrial, and resources - the industrial sectors liquidity is most important in explaining individual stock liquidities. Finally, we do not find any evidence of size effects and document an asymmetric effect of market-wide liquidity on liquidity of individual stocks.
AB - In this article, we examine four specific hypotheses relating to commonality in liquidity on the Chinese stock markets. These hypotheses are (1) that market-wide liquidity determines liquidity of individual stocks; (2) that liquidity varies with firm size; (3) that sectoral-based liquidity affects individual stock liquidities differently; and (4) that commonality in liquidity has an asymmetric effect. Drawing on a two-year data set on the Shanghai and Shenzhen stock exchanges comprising over 34 million and 48 million transactions, respectively, we find strong support for commonality in liquidity and a greater influence of industry-wide liquidity in explaining liquidity of individual stocks. Moreover, our results suggest that of the three main sectors - financial, industrial, and resources - the industrial sectors liquidity is most important in explaining individual stock liquidities. Finally, we do not find any evidence of size effects and document an asymmetric effect of market-wide liquidity on liquidity of individual stocks.
KW - asymmetric information
KW - Chinese stock exchange
KW - commonality in liquidity
KW - size effects
UR - http://www.scopus.com/inward/record.url?scp=84940398007&partnerID=8YFLogxK
U2 - 10.1080/1540496X.2015.1061799
DO - 10.1080/1540496X.2015.1061799
M3 - Article
AN - SCOPUS:84940398007
SN - 1540-496X
VL - 51
SP - 915
EP - 944
JO - Emerging Markets Finance and Trade
JF - Emerging Markets Finance and Trade
IS - 5
ER -