An Empirical Study Of The Impact Of New Regulations Of Reduction On The Liquidity Of SME Stocks

In 2015,the stock market crashed,investors' confidence was extremely frustrated,major shareholders reduced their holdings disorderly and illegally.And the A-share market witnessed a phenomenon that thousands of shares hit the bottom of the limited price,which not only affected the liquidity of the market,but also had a negative impact on the investors' confidence.Therefore,the China Securities Regulatory Commission(SFC)issued a new regulation on the reduction of shares on May,2017.The purpose of the new regulation is to maintain market stability and protect the interests of small and medium-sized investors,but it restricts the exit of shareholders and reduces the enthusiasm of shareholders' entering the market,which has a negative effect on the market.In addition,the biggest change of the new regulations is the restriction of block trades and the reduction of non-public offerings,which has a greater impact on small-cap companies' shareholders,compared to the mature main board market and the tighter GEM market.The new regulations have a greater impact on the SME board market.Under this background,this paper aims to research the impact of the new regulations of reduction on the SME stocks from the perspective of liquidity.First of all,it summarizes the relevant literature on the definition and measurement of liquidity,selects appropriate liquidity measures,and summarizes the factors affecting liquidity.Then the paper theoretically analyzes the influence of the new regulation on the liquidity of the stock market,and then chooses SME as research object.And then put forward the hypothesis: “the new regulations of reduction will reduce the liquidity of SME stocks”.Secondly,this paper uses regression analysis to conduct empirical analysis.The 813 selected listed companies in the SME board market are used as research samples,and the liquidity index selected through comparative analysis is used as the explained variable.The policy of new regulations as an explanatory variable is defined as 0 before the introduction of the new regulations,and 1 after the introduction of the new regulations.To exclude the influence of other factors,the four factors that affect the liquidity of the stock are used as control variables to construct a regression model,which are the daily rate of return and volatility of stocks with individual characteristics,replacing the Shanghai index of the macroeconomic variables and the natural logarithm of the market value of the company's scale.Then,data processing and panel model selection tests were conducted.Finally,a fixed-effect model was used for empirical estimation.The results of the study showed that the new regulation of reduction does reduce the liquidity of the SME board market.In order to ensure the robustness of the results,this paper uses the reciprocal of the Martin index and turnover rate as different indicators of fluidity for robustness test.Once again,the regression estimate has reached the same conclusion.The results of this study are robust.Finally,on the basis of the theoretical analysis and empirical results of this paper,and in light of the actual situation,it proposes the relevant suggestions for the regulators to issue policies of the stock markets.