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Some Hypotheses on Commonality in Liquidity: New Evidence from the Chinese Stock Market

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  • Paresh Kumar Narayan
  • Zhichao Zhang
  • Xinwei Zheng

Abstract

In this article, we examine four specific hypotheses relating to commonality in liquidity on the Chinese stock markets. These hypotheses are (1) that market-wide liquidity determines liquidity of individual stocks; (2) that liquidity varies with firm size; (3) that sectoral-based liquidity affects individual stock liquidities differently; and (4) that commonality in liquidity has an asymmetric effect. Drawing on a two-year data set on the Shanghai and Shenzhen stock exchanges comprising over 34 million and 48 million transactions, respectively, we find strong support for commonality in liquidity and a greater influence of industry-wide liquidity in explaining liquidity of individual stocks. Moreover, our results suggest that of the three main sectors—financial, industrial, and resources—the industrial sector’s liquidity is most important in explaining individual stock liquidities. Finally, we do not find any evidence of size effects and document an asymmetric effect of market-wide liquidity on liquidity of individual stocks.

Suggested Citation

  • Paresh Kumar Narayan & Zhichao Zhang & Xinwei Zheng, 2015. "Some Hypotheses on Commonality in Liquidity: New Evidence from the Chinese Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(5), pages 915-944, September.
    • Handle: RePEc:mes:emfitr:v:51:y:2015:i:5:p:915-944
    DOI: 10.1080/1540496X.2015.1061799
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    Cited by:

    1. Zhang, Hao & Luo, Xian & Han, Minghui & Liu, Xiaojuan, 2021. "Cultural diversity in ownership and stock liquidity commonality: Evidence from China," Finance Research Letters, Elsevier, vol. 40(C).
    2. Gaurav Kumar & Arun Kumar Misra & Abhay Pant & Molla Ramizur Rahman, 2024. "Assessing Commonality in Liquidity: Evidence from an Emerging Market’s Index Stocks," Global Business Review, International Management Institute, vol. 25(2), pages 302-322, April.
    3. Muhammad Usman Arshad, 2021. "Forecasted E/P Ratio and ROE: Shanghai Stock Exchange (SSE), China," SAGE Open, , vol. 11(2), pages 21582440211, June.
    4. Li, Xing & Hou, Keqiang, 2023. "Over-weighting risk factor augmented with mutual fund managers' social networks," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    5. Kumar, Gaurav & Misra, Arun Kumar, 2018. "Commonality in liquidity: Evidence from India’s National Stock Exchange," Journal of Asian Economics, Elsevier, vol. 59(C), pages 1-15.
    6. Syeda Hina Zaidi & Ramona Rupeika-Apoga, 2021. "Liquidity Synchronization, Its Determinants and Outcomes under Economic Growth Volatility: Evidence from Emerging Asian Economies," Risks, MDPI, vol. 9(2), pages 1-20, February.
    7. Mohammad Tayeh, 2016. "Determinants of Market Liquidity: Evidence from the Jordanian Stock Market," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(10), pages 48-59, October.
    8. Joanna Olbrys, 2019. "Intra-market commonality in liquidity: new evidence from the Polish stock exchange," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 14(2), pages 251-275, June.
    9. Joanna Olbryś & Elżbieta Majewska, 2020. "Assessing Commonality in Liquidity with Principal Component Analysis: The Case of the Warsaw Stock Exchange," JRFM, MDPI, vol. 13(12), pages 1-13, December.

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