Liquidity Black Hole Formation Mechanism And Empirical Research

In 2001, Avinash Persaud put forward a new concept which related to liquidity, he defined it liquidity black holes. It refers to a kind of phenomenon that the liquidity of the financial market suddenly disappear in a short time, its essence is a extreme condition of liquidity shortage crisis. During the past years, liquidity black holes occurred frequently, such as the crisis of the Long-Term Capital Management, the Asian Crisis 1997, the 2007 Subprime Crisis and so on, these events all shocked the world and get the scholars' attention to study liquidity black holes. In the view of this background, this paper put an emphasis to analyse the form mechanism of liquidity black holes, then conducts the empirical research of the liquidity black holes from the perspective of the macroscopic and microcosmic. At last, it gives some suggestions to prevent liquidity black holes.Firstly, in the basic of briefly introduce the external performance, measurement and form reason of liquidity black holes, this paper analyse its form mechanism by the related channel of balance sheet, homogeneous effect channel, expected domino effect channel and mathematical model.Secondly, this paper conducts the empirical analysis of the liquidity black holes from the perspective of macroscopic and microcosmic. The empirical study of macroscopic piont analyses the relevant data of external assets and liabilities in some selected center bank, and find that there exist an marked relationship between assets and liabilities among the financial institutions. Then get the conclusion that the liquidity black holes emerged by comparing the data in front and behind the 2008 Financial Crisis. At the level of the microcosmic, this paper chooses Hasbrouck's Auto-regressive Model to analyse the big trade data of some stocks in Chinese stocks market, then to examine in the positive feedback trade whether there exist liquidity black holes or not in Chinese security market, and makes a detail analyse for the empirical result.Thirdly, summary the paper's conclusion, and put forward some suggestions to prevent liquidity black holes to occur in three aspects of making investors diversify, keeping risk management assessment system homogeneity and supervise system heterogeneity. Then points out this paper's defect and forecast.