The Influence Of Stock Liquidity On Individual Investors' Stock Selection And Investment Returns

From the development course of China's stock market,the status of individual investors in China's stock market has been improving.With the continuous expansion of the team of individual investors and the continuous improvement of their own knowledge and quality,the investment behavior and investment income of individual investors in China's stock market have increasingly become an important topic of research.Liquidity,another focus of financial markets,is the cornerstone of a well-functioning securities market.Liquidity risk premium theory suggests that stock liquidity level correlation between it and its future expected returns,investors may be in the current tend to buy has lower stock level of liquidity in order to obtain a higher expected return on investment,but the only long-term shareholding investors will only buy a low level of liquidity of the stock?Amihud&Mendelson,1986?.Individual investors to invest in the stock market,very focused on investment income gained by the end of the high and low,the stock flow performance to some extent affect the expected rate of return of stock,so it can affect individual investors choose stocks,and further affect the individual investors can obtain excess risk-free rate?By investigating the trading strategies of individual investors,domestic scholar Yan Jiayuan?2015?found that most individual investors in China focus on short-term investment,have a short holding period,have no clear investment plan,and like to pursue stocks with high risk P/E ratio,with obvious herd behavior^[1].Therefore,it can be said that most of the individual investors in China are"speculators"and short-term operators.Then,whether Chinese individual investors will prefer stocks with higher liquidity to meet the trading needs of"chasing the rise and killing the fall"and"quick buy and quick sell".At present,there is little research on whether the liquidity level of an individual stock will affect its ultimate excess risk-free return rate.Therefore,this paper focuses on the introduction of stock liquidity factors to study its impact on individual investors'stock selection preferences and investment returns.This paper select China's Shanghai and Shenzhen a-share listed companies from 2007 to2012,the largest proportion in the tradable shares,liquidity is good,in the history of China's stock market is the typical position))and in the meantime on the Shanghai and Shenzhen A shares account of individual investors to trade the shares of listed companies data?the data from A randomly selected stock exchange form?as the research sample,using panel data from multiple regression model and Fama-French multi-factor model,respectively during the whole sample,cattle,stock liquidity for individual investors choose stocks during A bear market research and the influence of the return on investment,And the influence of stock liquidity on stock selection and investment returns of individual investors with different capital scales.Through the study,the following conclusions are drawn:Firstly,from 2007 to 2012,the stock liquidity level of a-share listed companies in Shanghai and Shenzhen will significantly affect individual investors'stock selection behavior.The grange causality test results in this paper preliminarily show that the stock liquidity is one of the factors affecting the stock selection of individual investors,but the stock selection behavior of individual investors in China does not affect the stock liquidity.To some extent,this shows that individual investors in China are difficult to have a substantial impact on the liquidity of individual stocks due to the dispersed ownership and insufficient capital.Furthermore,through the panel data model,this paper finds that the illiquidity index ILLIQ adopted in this paper shows A significant negative correlation with the Nratio of new shares,indicating that the higher the illiquidity level of A shares in Shanghai and Shenzhen is,the more Chinese individual investors tend not to buy the shares of the listed company.Namely when choosing to purchase new shares,individual investors are more likely to buy high liquidity level of Shanghai and Shenzhen a-share listed company's shares,which to some extent,that at present our country most individual investors is not A long-term investor,weak consciousness of value investment,speculative,remarkable performance in the stock market is"quick buy to sell".After staging the sample period,it is found that:no matter the stock market is in a bull market or a bear market,the stock liquidity level will significantly affect the individual investor's stock selection,which shows that the stock with a higher liquidity level is more attractive to individual investors.However,the impact of the bull market is less significant than that of the bear market.When the stock market is in a bear market,the stock market is in a dismal state and the stock market is in an extreme downturn.However,under the bull market,the stock market is booming and the sentiment of investors is high.Most stocks are on the rise,and the stocks in the market are maintaining high liquidity.Therefore,the influence of the liquidity level of stocks on individual investment stock selection is less significant than that of the bear market.Stock liquidity impact on individual investors choose stocks in different the size of the funds also show the differences between individual investors:stock liquidity for small,medium amount have significant positive influence on individual investors choose stocks,with medium and the size of the funds under the individual investors tend to buy high liquidity a-share listed company shares;For individual investors with large capital scale,stock liquidity has a positive effect on their stock selection,but the result is not significant.After the whole sample robustness test of stock liquidity measurement index is carried out,the empirical results of this paper still show that the stock with high liquidity level can attract individual investors to invest more.Secondly,through analysis,this paper finds that the liquidity of China's stock market from2007 to 2012 is basically consistent with the trend of the overall returns obtained by individual investors.When the global financial crisis broke out in 2008,the overall liquidity level of China's stock market dropped to the lowest level,and the stock market fell into a huge liquidity crisis,during which individual investors also suffered huge losses.The results of correlation test show that there is a significant positive correlation between stock liquidity and the profitability of individual investors.Finally,from 2007 to 2012,the stock liquidity level of a-share listed companies in Shanghai and Shenzhen significantly affected the investment returns of individual investors in China.This means that the stock with higher liquidity level can meet the operational needs of individual investors in China.The higher the liquidity level,the higher the liquidity of individual stocks,the lower the transaction risk of individual investors,the lower the transaction cost.During the bull market and the bear market,the stock liquidity and individual investor's investment income are significantly positive correlation.That is,no matter what kind of market the stock market is in,the stock with high liquidity level will enable individual investors to obtain higher investment income.However,the impact of the liquidity level of a single stock on the investment returns of individual investors is different in bull market and bear market.Compared with bull market,the impact of the liquidity of a single stock on the investment returns of individual investors will be greater.By replacing the liquidity measurement index of individual stocks,the results of robustness test show that the liquidity level of individual stocks still has a significant positive effect on the investment income of individual investors,and the results of empirical analysis have certain reliability and robustness.The research of the thesis is a useful supplement to the existing research literature in related fields.According to the theory of liquidity premium,investors should choose stocks with low liquidity to obtain higher expected returns.However,the research conclusion of this paper shows that individual investors in China prefer stocks with high liquidity level,and such stocks will make them obtain higher investment returns.