The Analysis Of The Liquidity And The Liquidity Risk Premium In China's Stock Market

Liquidity is the cornerstone of the existence and the development of the stock market. Adequate liquidity can guarantee the stock market transactions smoothly, if the stock market is short of liquidity, the market transactions will be difficult to enforce, and it is difficulty for the market because of the loss of market conditions for the survival. Therefore, it is because of the existence of the stock market liquidity to ensure the healthy and stable development of the stock market.Stock liquidity can directly affect the stock transaction costs and liquidity risk, and there have an important impact on the expected return of the stock market. As a vital part in the financial system, the stock market plays an important role in maintaining the stability of the financial system and promotes the development of the financial system. Therefore, to study liquidity premium and the influencing factors on the stock market liquidity will help investors to grasp the market changes, make the specified trading strategy more reasonable, can help regulators monitoring market conditions better, select appropriate means regulation, and regulate the market at the right time, and then promote the perfection of supervision system in China stock market, protect the healthy and stable operation of the market.Based on the measurement of liquidity of stock market in our country, the GARCH model is used to test the asymmetry of liquidity fluctuation, and the ASV model is used to test the leverage effect of liquidity. The results show that China's stock market liquidity volatility has a significant asymmetry characteristic and leverage effect. The market liquidity is reaction to bad news sensitive. The fluctuation of China's stock market liquidity can be divided into two states; liquidity volatility has a faster decay rate and a longer continuous time in low areas state, and the fluctuation has periodicity. The transition probability from high state to the low state is higher than the transition probability from low state to the high state. There has a big difference between the duration and the sensitivity of the volatility between liquidity fluctuation characteristic of Shanghai stock market and Shenzhen stock market.Based on the analysis of the volatility characteristics of China's stock market liquidity, through Copula model, time-varying Copula model, time-varying Copula GAS model and time-varying SJC-Copula model, this paper makes an empirical test on the relationship between the stock market liquidity volatility and return. There is a weak positive correlation between stock market liquidity volatility and return in China stock market. Through the comparative analysis we found that the relationship and the tail correlation between liquidity and return has a big difference among different markets, and in different periods, the same market also has different relationship and tail correlation. This paper finds that this weak positive correlation has significant time variation characteristics and changes with the change of the stock market by using the time-varying model test. The results show that the tail correlation between the liquidity volatility and return of the different stock markets in China has significant time variation and asymmetry characteristics.Generally speaking, the relationship between the liquidity volatility and the rate can be divided into two types: one is effect of the liquidity to return can be expected which is called "liquidity premium"; one is unpredictable, called "the liquidity risk premium". Based on the empirical test of the relationship between the change of liquidity and the return of the different stock markets in China, this paper empirically tests the relationship between liquidity and expected return in Shanghai stock market. There is a significant negative correlation between stock liquidity and expected return, which supports the theory of liquidity, and has a significant scale effect, but the performance of value effect is different in different models. According to the Wind industry division method, this paper devised the sample to industry group. On the basis of empirical stock portfolio test we found that the telecom service industry stocks portfolio does not support the liquidity premium theory, the rest of the industry to support the theory of liquidity premium, but after adding the size and value variables, some sectors of the stock portfolio liquidity premium coefficient becomes not significant. Then through the panel threshold analysis, we found that there is a significant size effect and value effect, and there is a big difference in liquidity premium in different market period. With the market return as the threshold variables, panel threshold model analysis results show a different conclusion, in the smaller increases period and the decline period, the liquidity premium performance is consistent, the liquidity premium is higher than that of the rise period, after the consider the scale factors and value factors. In different periods of market liquidity premium decreases. On this basis, this paper constructs endogenous Markov regime switching model to test quantitative relationship between liquidity and expected return among the different industry index. The quantitative relationship between the index of different industries and the expected return is found to have uncertainty and asymmetry. The relationship between liquidity and return is different in different state for every industry. And there is a big difference for the relationship between liquidity and expected return in the same state of different industries. The liquidity premium in China's Shanghai stock market is a time variant, and has differences between industries.Based on the empirical test of the asymmetry of the liquidity premium in the stock market, this paper makes an empirical analysis of the time-varying characteristics of the liquidity risk premium in China's stock market. In order to describe the time variation characteristics of the market anomalies in asset returns, this paper used the CAPM model, the two factors of the liquidity adjusted CAPM model, Fama-French three factor CAPM model and the liquidity adjusted four factors CAPM model to empirical analyze the risk premium in China's stock market. On this basis, state space model with variable coefficient is used to extend the four models, then make an empirical analysis used the extend time-varying model, it is found that the characterizations of the market risk premium and the value effect is consistent with the four time varying models, but the characterizations of he scale effect and the liquidity risk premium is different in different time varying models. Through an empirical analysis of time-varying four-factor CAPM model, we find that the liquidity risk premium has an obvious time-varying characteristic.There are great differences in the characteristics of liquidity and liquidity risk of stock market in different periods, so due to liquidity risk investors' requirements for the premium also exists a lot of difference in different periods of. In order to better grasp the liquidity premium and liquidity premium phenomenon, based on the empirical test of asymmetric liquidity premium and time-varying characteristics of the liquidity risk premium, this paper analyzes the effect of macroeconomic factors impact on liquidity premium, and examine the effects of macroeconomic factors on the stock market liquidity and liquidity risk by BVAR model, the empirical results show that the effect of macroeconomic factors on the stock market liquidity and liquidity risk has stage characteristics, and there are differences in the direction and the degree of influence in the impact of the different macroeconomic factors to the stock market liquidity and liquidity risk. China's stock market is a "policy market", because the regulation effect of fiscal policy on the stock market is limited, and the cost is higher, the operation of monetary policy on the stock market can have a direct impact, this paper focuses on the analysis the asymmetric effects of monetary policy on China's stock market liquidity and liquidity risk. This paper uses the TVP-VAR model to empirical test the time-varying characteristics of effects of monetary policy on the liquidity of Chinese stock market.It is found that the expansion of monetary policy can increase stock market liquidity while the shrinkage of monetary policy leads to decrease. The effects of money supply, interest rates and market yields on China's stock market are significantly time varying. There are obvious differences of the effect of monetary policy on the stock market in the degree and the duration. MS-VAR model is used to analyze asymmetry effect of monetary policy on liquidity risk. And the results show that the liquidity risk of China's stock markets is characterized by three regimes: “high liquidity risk”, “middle liquidity risk”, “low liquidity risk”. The growth of money supply and interest rate has asymmetric effects on the liquidity risk, and the degree of influence is different in different regimes.