Study On The Influencing Factors On China’s Stock Market Liquidity Black Hole

Traditional financial theory generally studies financial markets which are in a balanced state. Theory seldom focuses on the special stage for the market which asset supply and demand becomes imbalanced. Liquidity black hole is the the phenomenon of the sudden loss of the liquidity of the financial assets. It will result in a capital market which can not play a normal pricing and trading functions, and generates an adverse effect on the market. Throughout history, financial market liquidity crisis frequently occur. It is of great significance to research on liquidity black hole to the understanding of the financial markets.In this paper, theories including financial economics research methods, market microstructure theory, as well as corporate finance theory are used and economictrical methods including the panel data fixed effects model, cross regression model, the research methods of the control group, event study are employed. In addition, we make use of some databases including the csmar database, Wind financial terminal database, and some mathematical software including Stata, Matlab and Eviews to conduct a study on China’s stock market liquidity black hole influencing factors.The main researches of this dissertaition include:(1) It summarizes the connotation and external performance of the liquidity and the liquidity black hole. It sums up the past literature for liquidity black hole formation mechanism and a large number of factors affecting the liquidity black hole. Research direction is proposed on the basis of the existing literature.(2) This dissertation qualitatively discusses the meaning of a liquidity black hole, and then makes a clear definition of the liquidity black hole. Furthermore, it draws on the liquidity black hole a binary measure model based on market crash model, and by measuring the Chinese stock market its liquidity black hole performance characteristics are discussed.(3) It examines the impacts of information asymmetry on liquidity black hole and then builds a liquidity black hole formation model established under the framework of the information asymmetry. The investor structure as a starting point, study of information asymmetry on liquidity black hole is done by using the Chinese stock market panel data. And then it studies the impact of China’s market typically informed traders- investment funds’ behavior on liquidity black hole.(4) It examines the influence of direct friction on liquidity black hole by building a HS model which includes the influence of direct friction. And event study methods are used to make a research of the impact of direct friction changes on liquidity black hole.This dissertation makes Innovative researches in the following areas:(1) In depth discussion on the basis of stock market liquidity black hole connotation, a clear definition of the concept of liquidity black hole is given. Based on the previous studies on liquidty, starting from the concept of liquidity black hole, it proposes liqudity black hole binary measure model drawing on the market crash measure model.(2) It studies the impacts of the information asymmetric on liquidity black hole. And then it builds a liquidity black hole formation model established under the framework of the information asymmetry. Results show that while the information asymmetry is high, uninformed traders tend to change the expectation on market according to price changes, and these results in the collective buying or selling. As a result, the factor leads to a liquidity black hole. And empirical panel data fixed effects model further demonstrates the above conclusions.(3) It studies the direct friction affection on the liquidity black hole by building a HS model considering the friction. The results show that direct friction will increase the likelihood of liquidity black hole, and enhance the magnitude of the liquidity black hole. Both the univariate and multivariate models give the evidences that the increase of direct friction will improve the frequency of occurrence of the liquidity black hole, and this is consistent with the result of the Model.The conclusions are summarized as follows:This paper focuses on the definition, measure indicators and impact factors of the liquidity black holes, and the findings show that:(1) The definition of the liquidity black hole is the sudden disappearance of the liquidity of the financial market in a short period of time. Refering to the measure of the market crash, liquidity black hole binary measure indicators are got. Empirical analysis shows that China’s stock market liquidity black holes have the following charecters: a sudden decline in the level of liquidity, price asymmetric discontinuous change and the clustering. And this further proves the rationality and effectiveness of the binary measure indicators.(2) There are a lot of factors that will influence the liquidity black hole. They include the homogenization of investors, investment strategy of institutional investors, funding constraints, trading mechanism, the bubble burst and the financial market frictions. Liquidity black hole is a financial market failure phenomenon, and therefore financial market friction is one of the most important influencing factors. And to analyze its impact on the liquidity black hole can be from two aspects: asymmetric information and direct friction.(3) With high information asymmetry, the uninformed traders tend to cause the occurrence of a liquidity black hole by changing the expectation of market according to changes in asset prices. Higher the proportion of uninformed traders, the more the possibility of the occurance of liquidity black hole. The studies of Funds show that overweighted stocks are less likely to be caught in a liquidity black hole. And this means that in our country, the fund company as informed traders in the stock market has played the role of a market stablizer.(4) Direct Friction has impacts on the liquidity black hole. Both therotical and empirical studies show that higher direct friction leads to greater likelihood of occurance and the larger magnitude of liquidity black hole.Theoretically, this dissertation improves theoretical research on the liquidity black hole definition, measurement, and impact factors, and applies these to Chinese stock market. From a practical perspective, both regulators and investors can deepen understanding of the stock market, to prevent the generation of liquidity black hole.