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The heterogeneous impact of liquidity on volatility in Chinese stock index futures market

Author

Listed:
  • Xu, Yanyan
  • Huang, Dengshi
  • Ma, Feng
  • Qiao, Gaoxiu

Abstract

This paper first investigates the heterogeneous impact of liquidity on volatility by using the intraday data of the Chinese stock index futures market. Based on the quantile regression method, we obtain several noteworthy findings. First, in sample result shows that illiquidity can significantly increase volatility at the right tail, which seems to be a notable J-shaped relationship between the illiquidity and volatility in Chinese stock index futures market. Second, the effects of the illiquidity on past negative returns (“bad news”) are much stronger than on past positive returns (“good news”). Third, by documenting the intraday pattern of the illiquidity, the highest impact of the illiquidity on volatility occurs in the last half-hour rather than in the first half-hour of each trading day.

Suggested Citation

  • Xu, Yanyan & Huang, Dengshi & Ma, Feng & Qiao, Gaoxiu, 2019. "The heterogeneous impact of liquidity on volatility in Chinese stock index futures market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 517(C), pages 73-85.
    • Handle: RePEc:eee:phsmap:v:517:y:2019:i:c:p:73-85
    DOI: 10.1016/j.physa.2018.11.020
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    Cited by:

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    5. Zhang, Pengcheng & Kong, Deli & Xu, Kunpeng & Qi, Jiayin, 2024. "Global economic policy uncertainty and the stability of cryptocurrency returns: The role of liquidity volatility," Research in International Business and Finance, Elsevier, vol. 67(PB).

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