The Relationship Between Liquidity Level,Liquidity Variance And Stock Return Rate In Chinese Stock Market

Stock liquidity is a measure of stock trading time and trading cost,which reflects the stock market trading status and trading activity,so liquidity is the basic element of the stock market.Researches on liquidity mainly focus on the influence of liquidity level,that is,liquidity value,on stock return rate.However,there are few studies on liquidity variance.This is because the size of liquidity has already had an impact on the stock return rate,and considering the impact of liquidity variance on the stock return rate may lead to the repetition of the study.The study on liquidity variance and the covariance of liquidity and return rate as factors affecting the return rate mainly started from the asset pricing model of liquidity adjustment proposed by Acharya and Pedersen(2005).They believe that there is friction in the market,and the reason for the friction is the liquidity of the stock.Therefore,they define liquidity as the transaction cost and bring it into the asset pricing model to re-estimate beta and get the asset pricing model of liquidity adjustment.Three liquidity risks are mentioned in the model,which are the covariance of stock return and its own liquidity,the covariance of stock return and market liquidity,and the covariance of stock liquidity and market liquidity.The essence of the latter two risks is to measure the degree to which liquidity deviates from its mean value.This indicates that the degree of liquidity deviation from the mean will affect the return rate of stocks.Since the liquidity adjusted asset pricing model proposed by Acharya and Pedersen(2005)pointed out that the degree of liquidity deviation from the mean would affect stock return rate,this paper took liquidity variance as the factor affecting stock return rate and studied the impact of liquidity variance on stock return rate.Previous papers have confirmed that liquidity level will affect stock return rate,so this paper first studies liquidity level and liquidity variance separately,and then studies them together.In the asset pricing model of liquidity adjustment,the covariance of stock liquidity and market liquidity will affect the return rate of stock,so the influence of market liquidity variance on the return rate of stock cannot be ignored.In this paper,liquidity variance is decomposed into two parts:one part is the variance of individual stock liquidity that can be explained by market liquidity variance,which is called systematic liquidity variance;the other part is the variance of individual stock liquidity that cannot be explained by market liquidity variance,which is called the variance of individual stock specific liquidity.This paper studies the influence of systematic liquidity variance and specific liquidity variance of individual stock on stock return rate.Explore the influence of variance of two different ways on stock return rate.The practical significance of studying liquidity variance is to analyze investors'choice between systematic liquidity variance and individual stock specific liquidity variance.The empirical results show that investors pay more attention to individual specific liquidity variance.For the selection of stocks,can choose more conducive to obtain excess returns of the stock.In particular,for stocks with the same liquidity variance,we can compare the variance of the two parts and choose-the stocks with more excess returns.This paper selects a-share data of Shanghai and Shenzhen stock exchanges from January 2006 to June 2019 for research.For the study of stock liquidity level,this paper adopts the liquidity level as a factor to be added into the CAPM,Fama-French three-factor model and Carhart four-factor model to study the influence of liquidity level on stock return rate.In the study of liquidity variance,liquidity variance was also added as a factor into CAPM,Fama-French three-factor model and Carhart four-factor model to study the influence of liquidity variance on stock return rate.Then,the liquidity variance was decomposed into system liquidity variance and stock specific liquidity variance,which were added into CAPM,Fama-French three-factor and Carhart four-factor models to study the influence of system liquidity variance and stock specific liquidity variance on stock return rate.One of the innovative points of this paper is that the discussion on liquidity level and liquidity variance is more perfect.Their influence on stock return rate is discussed separately and their influence on stock return rate is discussed together,which makes the results of the discussion more convincing.The second is to decompose the liquidity variance into two parts to explore their impact on the stock return rate,so that the impact of liquidity variance on the stock return rate comes from the specific liquidity variance of a single stock.Thirdly,it explores the two parts of liquidity variance and the influence of liquidity level on stock return rate.The variance of the two parts will not affect each other,and the liquidity variance of individual stock will not be affected by the liquidity level.