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The Structural Changes of Liquidity Risk, and Liquidity Risk Premium in China Stock Market

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  • Xinxin Ma
  • Pengcheng Song
  • Xuan Zhang

Abstract

The Chinese stock market’s liquidity risk premium at medium-size and large companies declined from 2002 to 2016. We find the liquidity risk premium is negative during this period. The negative liquidity risk premium demonstrates that sellers prefer to compensate buyers when stock prices crash. In addition, the portfolio liquidity risk has a structural change after the split-share structure reform. Portfolio liquidity risk diverges from the relevant prehistorical betas, during the split-share structure reform. Similarly, the historical liquidity beta is nonmonotonic with postranking liquidity beta, before the reform. However, the historical liquidity beta is monotonic with postranking beta, after the reform.

Suggested Citation

  • Xinxin Ma & Pengcheng Song & Xuan Zhang, 2020. "The Structural Changes of Liquidity Risk, and Liquidity Risk Premium in China Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(14), pages 3507-3521, November.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:14:p:3507-3521
    DOI: 10.1080/1540496X.2019.1601554
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    Cited by:

    1. Jun Liu & Kai Wu & Fuwei Jiang & Zhiqi Shen, 2023. "How is illiquidity priced in the Chinese stock market?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(S1), pages 1285-1320, April.

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