The Shanghai A-share Market Liquidity And The Liquidity Premium Research

Security market liquidity is one of the main indicators to weigh the efficiency of security market, which means the ability of transforming security assets into cash quickly in the reasonable price and low trade-cost. The globalization of modern economy requires the production resource distribute internationally and security market is a key hinge to realize resource distribution efficiently in value chain. Though Chinese security market experienced a dramatic growth and development during last ten years, there are still a great deal of downsides and defects on liquidity situation, and it is imperative to establish a security market with good liquidity. Based on the local and foreign scholar's studies on the relationship of market liquidity and capital pricing, this article contrasts the supply-demand character of liquidity under different trade mechanisms, designs indices to substitute liquidity four dimensions suitable to describe Chinese security market, and with super-high frequency data in daily transaction stages, demonstrate the relationship of liquidity indices and stock expect return in cross-sectional and time-series by means of econometrics, in order to explain the causes of liquidity premium deeply. The main conclusions of the article as follow:(1)Except for quote depth, other three liquidity indices, namely market width, transaction immediacy and market resiliency, could well explain the movement of stock expect premium, which indicates clearly that there is the phenomenon of liquidity premium in Shanghai stock market.(2)The bid-ask spread in Shanghai stock market is mainly composed of adverse selection cost, which indicates the severe information asymmetry in market attributed to equity division.(3)Market width and depth shows the positive correlation in order-driven market characterized continuous auction, since equity division results in market information asymmetry, which makes adverse selection cost increase, and yet the cost is positively correlated with trade volume.(4)Trade cost effects trade frequency to enlarge the negative correlation between trade frequency and stock expect return. Despite the high trade frequency in Shanghai stock market, it is the result of low bid-ask spread and doesn't truly reflect the activity of market transaction. Thus, it is limited to weigh the liquidity of Chinese security market by using turnover index.