Regulatory changes and market liquidity in Chinese stock markets

Lei Gao; Gerhard Kling

doi:10.1016/j.ememar.2005.11.001

Regulatory changes and market liquidity in Chinese stock markets

Lei Gao, Gerhard Kling

Accountancy & Finance, Finance

Research output: Contribution to journal › Article › peer-review

22 Citations (Scopus)

Abstract

Our study measures the impact of institutional reforms in China on market liquidity. Using monthly data on turnover ratios, turnover–volatility ratios and stock returns for the Shanghai and Shenzhen Stock Exchange and applying an intervention model, we detect a considerable impact of regulatory changes on liquidity. Motivated by the inventory paradigm and the disposition effect, our empirical model accounts for market returns and macroeconomic shocks. The ban of futures trading reduced market liquidity; however, lower commissions enhanced trading. Market reforms were favorable for the development of financial markets—but these effects were not long lasting.

Original language	English
Pages (from-to)	162-175
Number of pages	14
Journal	Emerging markets review
Volume	7
Issue number	2
Early online date	5 May 2006
DOIs	https://doi.org/10.1016/j.ememar.2005.11.001
Publication status	Published - Jun 2006

Bibliographical note

Acknowledgements
We are grateful for the comments of an anonymous referee. Furthermore, we thank the discussants and participants of the annual meeting of the Midwest Finance Association in Milwaukee 2005 and of the First Chinese Finance Annual Conference in Xiamen 2004 for their helpful suggestions.

Keywords

Shanghai
Shenzen
Disposition effect
Liquidity
Regulation

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http://eprints.soas.ac.uk/17715/Licence: CC BY-NC-ND

Cite this

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abstract = "Our study measures the impact of institutional reforms in China on market liquidity. Using monthly data on turnover ratios, turnover–volatility ratios and stock returns for the Shanghai and Shenzhen Stock Exchange and applying an intervention model, we detect a considerable impact of regulatory changes on liquidity. Motivated by the inventory paradigm and the disposition effect, our empirical model accounts for market returns and macroeconomic shocks. The ban of futures trading reduced market liquidity; however, lower commissions enhanced trading. Market reforms were favorable for the development of financial markets—but these effects were not long lasting.",

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AU - Kling, Gerhard

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N2 - Our study measures the impact of institutional reforms in China on market liquidity. Using monthly data on turnover ratios, turnover–volatility ratios and stock returns for the Shanghai and Shenzhen Stock Exchange and applying an intervention model, we detect a considerable impact of regulatory changes on liquidity. Motivated by the inventory paradigm and the disposition effect, our empirical model accounts for market returns and macroeconomic shocks. The ban of futures trading reduced market liquidity; however, lower commissions enhanced trading. Market reforms were favorable for the development of financial markets—but these effects were not long lasting.

AB - Our study measures the impact of institutional reforms in China on market liquidity. Using monthly data on turnover ratios, turnover–volatility ratios and stock returns for the Shanghai and Shenzhen Stock Exchange and applying an intervention model, we detect a considerable impact of regulatory changes on liquidity. Motivated by the inventory paradigm and the disposition effect, our empirical model accounts for market returns and macroeconomic shocks. The ban of futures trading reduced market liquidity; however, lower commissions enhanced trading. Market reforms were favorable for the development of financial markets—but these effects were not long lasting.

KW - Shanghai

KW - Shenzen

KW - Disposition effect

KW - Liquidity

KW - Regulation

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JO - Emerging markets review

JF - Emerging markets review

IS - 2

ER -

Regulatory changes and market liquidity in Chinese stock markets

Abstract

Bibliographical note

Keywords

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