Economics, Econometrics and Finance
6 years ago

Chinese stock market sees negative liquidity risk premium, sellers compensate buyers.

Emerging Markets Finance and Trade
The Structural Changes of Liquidity Risk, and Liquidity Risk Premium in China Stock Market
Xinxin Ma, Pengcheng Song, Xuan Zhang

Paper Summary

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The Chinese stock market saw a decrease in liquidity risk premium for medium and large companies from 2002 to 2016. This means that when stock prices drop, sellers are willing to compensate buyers. The split-share structure reform also caused changes in portfolio liquidity risk, diverging from past trends. Before the reform, historical liquidity beta did not follow the same pattern as post-reform beta, but after the reform, they aligned.