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 language | English |
|---|---|
| Pages (from-to) | 304-320 |
| Number of pages | 17 |
| Journal | Journal of Banking and Finance |
| Volume | 45 |
| DOIs | |
| Publication status | Published - Aug 2014 |
| Externally published | Yes |
Keywords
- Commonality in liquidity
- Funding liquidity hypothesis
- Split-share-structure reform
- Investor participation
- Real impact