Formation Mechanism Of Liquidity Black Hole And Turth Analysis

The subprime mortgage crisis which are broken out in the autumn of2007, let the world witness liquidity reversed from "excess" to "serious deficiency" in a short time. Lots of large financial institutions which were all-powerful in the financial markets are the first fallen in difficulty and have liquidity emergency. The phenomenon that liquidity vanishes for a while is called "liquidity black hole" which in essence is an extreme case of liquidity crisis.So this paper chooses the extremes of crisis "liquidity black hole" as the object of study.On the part of theoretical analysis, based on the overview and the causes of liquidity black hole, then emphatically analyzes the formation mechanism of liquidity black hole. This paper analyzes the formation mechanism of liquidity black hole on the perspective of herding, particularly cite the herding model of random graphic which was put forward by Pama Cont and Jean-Philipe.This model shows that on the effect of herding, the market volatility aggravated and the market showed strong convergence.Because the main external manifestations of liquidity black is the high volatility,so the model can well explain the formation mechanism of liquidity black hole.On the part of empirical study, in order to verify the relationship between herding and stock price volatility which was analaysed by the theoretical part, firstly conduct the empirical analysis by study short-term institutional investors herding behavior, and correlation test between herding behavior and liquidity black hole.In the empirical part of institutional herding, this paper select the50of Shanghai stock Exchange sample stocks as the research object, use the LSV measure method and Wermers buy and sell herding, index method, verify the conclusion that herding efect on the the market is significant. Based on the empirical analysis on short-term institutional herding behavior, apply the panel data regression of fixed effect to test the correlation between herding behavior and liquidity black hole. This empirical result shows that, when the economic downturns, the market volatility would be exacerbated by the herding effect of seller. On the extreme case, the liquidity black hole would happen.Finally, according to the above research and empirical analysis, put forward some suggestions to improve liquidity management.