Sage Journals: Discover world-class research

Abstract

In the trading activities, the liquidity level of assets and its impact on future earnings has always been a concern for investors. This paper calculates the liquidity of the stock market by constructing a frictionless asset model. At the same time, we test the application of the liquidity level premium index in the LA-CAPM model, mainly draws the following conclusions: (1) Although the individual liquidity of the stock has different individual characteristics, but showing a common trend of change. Stock individual liquidity level premium level and the stock market performance of the opposite, when the market is good, the stock individual liquidity level premium is low. (2) The liquidity premium of the market portfolio is generally inversely related to the market index, and the liquidity premium between the different market combinations is significantly different. (3) In different portfolios, the portfolio of large, value-based company stocks is superior to the portfolio of small, growing corporate stocks. The results of this study have important reference significance for the construction of liquidity index and the research of liquidity and asset pricing.

Keywords

Information asymmetry LA-CAPM Model stock market liquidity level premium measurement

Get full access to this article

View all access options for this article.

References

Grossman

S.J.

and Miller

M.H.

, Liquidity and market structure, Journal of Finance43(3) (1988), 617–633.2.

Kai

, A new method to measure the risk of stock liquidity, Contemporary Economy (13) (2008), 160–161.

Hasbrouck

, Trading costs and returns for US equities: Estimating effective costs from daily data, The Journal of Finance64(3) (2009), 1445–1477.

Chaojun

Securities market liquidity theory and empirical studyin China, Shanghai Jiaotong University Press, Shanghai Jiaotong University Press, 2008.

Goyenko

R.Y.

, Holden

C.W.

and Trzcinka

C.A.

, Do liquidity measures measure liquidity?Journal of financial Economics92(2) (2009), 153–181.

Zheng

, Yizong

and Yulong

, China’s stock market liquidity indirect indicators of the test, Economics Quarterly13(1) (2013), 233–262.

Lee

K.H.

, The world price of liquidity risk, Journal of Financial Economics99(1) (2011), 136–161.

Amihud

, Hameed

, Kang

et al., The illiquidity premi-um:International evidence, Journal of Financial Economics117(2) (2015), 350–368.

Acharya

V.V.

and Pedersen

L.H.

, Asset pricing with liquidity risk, Journal of Financial Economics77(2) (2005), 375–410.

10.

Yuanxun

, Empirical study on liquidity risk of China’s stock market based on liquidity beta coefficient, Modern Management Science (6) (2006), 117–119.

11.

Feng

and Liyan

, An empirical study on the impact of transparency on the market quality of China’s stock market, Economic Research (5) (2006), 87–96.

12.

Qing

and Zhibai

, China’s liquidity adjustment under the CAPM research, Quantitative Economics and Technology Research25(6) (2008), 66–78.

13.

Jinan

and Liangbin

, Liquidity and asset pricing: An empirical study based on China’s a-share market, Finance & Accounting (12) (2008), 39–42.

14.

, Chai

and Do

, Empirical tests on the liquidity-adjusted capital asset pricing model, Pacific-Basin Finance Journal35 (2015), 73–89.

15.

Amihud

and Mendelson

, Asset pricing and the bid-ask spread, Journal of Financial Economics17(2) (1986), 223–249.

16.

Fama

and French

K.R.

, Common risk factors in the returns onstocks and bonds, Journal of Financial Economics33(1) (1993), 3–56.

17.

Fang

, Noe

and Tice

, Stock market liquidity and firm value, Journal of Financial Economics94(1) (2009), 150–169.

18.

Acharya

V.V.

and Schnabl

, Securitization without risk transfer, Journal of Financial Economics107(3) (2013), 515–536.

19.

Fang

and Wei

, China’s stock market liquidity risk premium, Finance Research (5) (2011), 194–206.

20.

Yulong

and Yizong

, Research on liquidity pricing mechanismbased on stochastic discount factor method, Management World (10) (2013), 35–48.

21.

Kyle

A.S.

and Xiong

, Contagion as a wealth effect, The Journal of Finance56(4) (2001), 1401–1440.

22.

Vayanos

, Flight to quality, flight to liquidity, and the pricing of risk, National Bureau of Economic Research (2004).

23.

Kamara

, Lou

and Sadka

, The divergence of liquidity commonality in the cross-section of stocks, Journal of Financial Economics89(3) (2008), 444–466.

24.

Liu

, Institutional ownership and stock liquidity, Investment Management and Financial Innovations10 (2013), 18–26.

25.

Dongmin

and Sha

L.S.

, should Qianwei. The role of the media inthe company’s beavihor: The turbulence of the Qing or fueled it?Management of the World (7) (2013), 145–162.

26.

Datar

V.T.

, Naik

N.Y.

and Radcliffe

, Liquidity and stockreturns: An alternative test, Journal of Financial Markets1(2) (1998), 203–219.

27.

Dongwei

and Yuanxun

, Liquidity and asset pricing: An empirical study based on the change of stock market returns and expected profits in China, Economics Research (2) (2004), 95–105.

28.

Zheng

and Li

, Turnover and stock returns: Liquidity premium orspeculative bubble?Economics Quarterly5(3) (2006), 871–892.

29.

Fangcai

, Chaopeng

and Shinong

, A study on the correlation between stock volume and yield sequence - empirical evidence from Chinese stock market, Finance Research (03) (2007), 140–150.

30.

Dongmin

, Liquidity risk and asset pricing: Evidence from China’s stock market, Southern Economy (3) (2006), 91–107.

31.

Liu

, A liquidity-augmented capital asset pricing model, Journal of Financial Economics82(3) (2006), 631–671.

32.

Fama

E.F.

and French

K.R.

, Dissecting anomalies, The Journal of Finance63(4) (2008), 1653–1678.

33.

Yunhui

and Lin

, Empirical study on CAPM of Chinese stock market, Finance Research (7) (2001), 106–115.

34.

Wang

and Di Iorio

, The cross section of expected stock returnsin the Chinese A-sharemarket, Global Finance Journal17(3) (2007), 335–349.

Dynamic measurement of the liquidity level of the stock market based on the LA-CAPM model

Abstract

Keywords

Get full access to this article

References