Regulatory changes and market liquidity in Chinese stock markets

Gao, Lei; Kling, Gerhard

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. © 2006 Elsevier B.V. All rights reserved.

Citation

Gao, L., & Kling, G. (2006). Regulatory changes and market liquidity in Chinese stock markets. Emerging Markets Review, 7(2), 162-175. https://doi.org/10.1016/j.ememar.2005.11.001

• Journal Article Type: Article
• Publication Date: Jun 1, 2006
• Journal: Emerging Markets Review
• Print ISSN: 1566-0141
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 7
• Issue: 2
• Pages: 162-175
• DOI: https://doi.org/10.1016/j.ememar.2005.11.001
• Keywords: Shanghai, Shenzhen, disposition effect, liquidity, regulation
• Public URL: https://uwe-repository.worktribe.com/output/1038467
• Publisher URL: http://dx.doi.org/10.1016/j.ememar.2005.11.001