Systematic liquidity and the funding liquidity hypothesis

Xiaolin Qian, Lewis Tam, Bohui Zhang

Research output: Contribution to journalArticlepeer-review

12 Citations (Scopus)

Abstract

In order to reconcile weak evidence of supply-side determinants of commonality in liquidity in previous studies, we examine commonality in liquidity in China over the period 1995-2012. Consistent with supply-side explanations, we find that market declines and market volatility increase liquidity commonality. To identify the direct relationship between the supply-side determinants and commonality in liquidity, we provide two specific tests and show that an increase in market participants has a negative effect on liquidity commonality, while the split-share-structure reform in 2005-2007 that results in a large increase in shares supply has a positive impact on liquidity commonality. Finally, we find that commonality in liquidity also has a real impact on the economy.

Original languageEnglish
Pages (from-to)304-320
Number of pages17
JournalJournal of Banking and Finance
Volume45
DOIs
Publication statusPublished - Aug 2014
Externally publishedYes

Keywords

  • Commonality in liquidity
  • Funding liquidity hypothesis
  • Split-share-structure reform
  • Investor participation
  • Real impact

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