Liquidity Of The Security Market: Empirical Analysis On Shanghai Stock Exchange

In this thesis, we will focus on the liquidity of the security market. With the data we get from FXJ system as well as some useful data processing tools, we have brought out an empirical research work on the liquidity of Shanghai Stock Exchange.Firstly, we will survey on the systematic distribution of the market liquidity in a typical trading day. We do believe there should be some interesting features of systematic distribution behind mass of data. Secondly, we will study on the Limit Order Book to find the capacities of the market for absorbing the impulse impact due to the trading behavior, especially trading with large size. And in the last sector, we will decompose the cost of liquidity with the purpose of finding the driven factors behind the fluctuation of market liquidity. In this process we will usher in the MRR model that Madhavan, Richardson and Roomans first used in 1997. What's more, we have compared our findings in this thesis with what have been found in other existed research works.Throughout the empirical research, we have found some key phenomena about the liquidity of the security market. There should be close relations between market liquidity and some variables such as the trading period, trading volume (or trading size).In a typical trading day, trading will begin with the lowest liquidity in the open period of the market and then the liquidity will reach a comparatively high level in a short period and the market liquidity will be held on this level without too much fluctuation for the rest of the trading day. That's to say, the distribution of liquidity in a typical trading day looks like an inverse "L" shape.In the second main research works in this thesis, we have found that the capacities of the different price in the Limit Order Book for absorbing trading impacts are different. In detail, the capacity of the best selling and buying price is the lowest and this capacity will steadily rise with the decreasing of the price priority. And in this section, another interesting phenomenon we have found is that these capacities remain an asymmetric structure between the buyer's side and the seller's side. On the buyer's side, the market seems to have a larger capacity.In the last section, we will decompose the liquidity cost into two parts: cost due to information asymmetry and non-information cost. We have found that the fluctuations...