Research On The Improvement Of China Stock Market Liquidity Measure Index

With the development of financial markets, financial theory is constantly updated.Produced in the1960s, financial market microstructure theory as an important branch ofthe financial theory, attracts more and more attention of scholars. As a basic researchdirection of financial market microstructure theory, liquidity is the top priority of thestudy. Whether a financial market effectively run or not, liquidity played a decisive role.Amihud and Mendelson in1990, pointed out:"The main function of the market is toprovide liquidity, market liquidity is everything".Liquidity research originated in the United States based on the Americanquote-driven market and liquidity theory is already quite mature. China’s stock market isinstruction-driven, different market trading mechanism means different formationprocess of the liquidity, which also decided that we can not directly use the foreignliquidity research to China’s stock market research. This article is intended to build aliquidity measure index which is suitable for instruction-driven trading mechanism inChina’s stock market, to provide an effective tool for the future of China’s stock marketliquidity management.First, we elaborate the definition of stock market liquidity and different dimensionsof the liquidity, compare and analyze existing liquidity measure indicators,and build anew stock market measure index. Second, the new build stock market liquidity measureindex experienced the synthesis test and sensitivity test. The synthesis test does multipleregression analysis which uses new-build measure index, width indicators, depthindicators, real-time indicators as variables and observes the number of R2.Thesensitivity test observes whether the new-build measure index can effectively reflectweeks characteristics and days characteristics or not.The empirical results show that the new-build stock market liquidity measure indexis superior to the existing measure index copied from foreign country in synthesis.sensitivity and applicability. The new-build liquidity measure index can be used as a toolfor measuring the liquidity of China’s stock market and provide support for the liquiditymanagement.