A Study On Market Liquidity Risk Management In Chinese Stock Market

On October 19,1987,a date that would later be known as Black Monday,the Dow Jones Industrial Average dropped by 22.6%,triggering a panicked selling spree in stock markets worldwide.The Brady Report released in the United States the next year attributed the crash to two factors: 1.investor nervousness and anxiety over the lack of liquidity in the stock market,and 2.high-frequency program trading that led to massive sales demands.The report therefore recommended implementing preventative measures,such as trading halts or circuit breakers,to limit the spread of panic and stabilize the market.The relevant literature indicated that there are two methods to effectively realize a “hybrid market” and prevent continual market slumps.First is the “postemptive” approach,introduced by Federal Reserve ex-Chairman Alan Greenspan,which advocates for supervisory measures that can stabilize plunging asset prices in the wake of a crisis.Second is the “preemptive” approach,introduced by another Federal Reserve ex-Chairman,Ben Bernanke,which advocates for preventative strikes against dropping asset prices.The domestic and foreign research on market liquidity risk of financial market microstructure theory,based on the characteristics of the market quotation driven or auction,from the trading mechanism to measure the level of market liquidity risk,but these studies are only for the liquidity risk of the single features,lack of the securities market in the stock market crisis of stock the price collapse mechanism of liquidity risk early warning under market and asset protection strategy.The logic of this paper is as follows: Firstly,review and evaluate relevant literature,summary of market liquidity risk management as well as important,including market liquidity risk measurement,early warning and mitigation strategies.Secondly,based on the stock market volatility and liquidity risk management problems,through the“stock market crisis”(2015)event analysis,focuses on the analysis of liquidity risk and abnormal high volatility reasons,found that the current liquidity risk indicators lack of volatility factors,hedge strategy and lack of prior warning indicators and lack of risk liquidity risk.Thirdly,Measurement of liquidity risk by liquidity options with volatility,then set up China s stock liquidity risk early "warning system based on the risk characteristics,using predict the noise signal ratio and is for early warning pointer with ROC curve to establish a threshold value,AUO as a stability test risk early-warning model.Then,using stock and bond asset allocation strategies to prevent market liquidity risk.Finally,summarize the important opinions and conclusions of this paper,and put forward suggestions.In this paper,we draw the conclusion that the volatility of the market liquidity is particularly serious.Therefore,we propose five suggestions:1.focus on abnormal stock market and high volatility to increase the market liquidity risk,the establishment of volatility of liquidity risk measurement.2.establish a complete and diversified information disclosure system,such as a variety of indicators and thresholds;3.establish an active risk early warning mechanism to prevent the liquidity spiral;4.improve derivatives market and bond market,in order to liquidity risk transfer and hedging strategy can be effectively implemented.5.implementation of mixed supervision system to avoid regulatory arbitrage and the establishment of micro and macro liquidity risk management system.Innovations of this paper are: 1.Illiquidity option based on lookback option as a measure of market liquidity risk indicators.2.Establishment of liquidity risk early warning system based on Basel III risk management framework.3.The establishment of the market liquidity risk management framework of China's securities market from the Macro-Prudential Management.