Empirical Analysis Of Timing Strategy Based On Liquidity

Since the concept of liquidity of financial assets proposed, scholars has paid increasing attention to study on liquidity of financial assets from definitions, measurements, factors and impact on revenue. In the domestic financial market, investors can feel the liquidity clearly, but it is difficult to be measured. Liquidity contains the trading information of current market, like price of trading, trading volume and transaction time. It also implies the future development trend of market, and can be used to find the time to invest for profit.In this paper, following the theory of liquidity Amihud proposed, Iuse the liquidity shocks, based on rate of return and trading volume, as a criterion for looking for investment opportunities. Based on the comparison of daily-closing-price and liquidity, there is some positive correlationships between rate of return and liquidity shocks. After applicated in the market, we can find that it is good for most indexes, profiting in rising markets and avoiding risk in falling market. But it also found that this is a conservative investment strategy, and it’s short positions in the non-rise market results in the loss of time value and some revenue. So it should be an integral part of a portfolio investment strategy combination, and it would be better to be used in conjunction with other strategies.