Liquidity and asset pricing: Evidence from the Chinese stock markets
Liquidity and asset pricing: Evidence from the Chinese stock markets
| dc.contributor.author | Lence, Sergio | |
| dc.contributor.author | Lence, Sergio H. | |
| dc.contributor.department | Economics | |
| dc.date.accessioned | 2021-12-13T16:15:18Z | |
| dc.date.available | 2021-12-13T16:15:18Z | |
| dc.date.issued | 2022-01-01 | |
| dc.description.abstract | We introduce a novel two-factor model, incorporating market and liquidity factors, which outperforms the CAPM and Fama-French factor models when applied to stock market returns in Shanghai and Shenzhen over 2000-2019. We compute the liquidity factor as the return on a liquidity-mimicking portfolio, which we construct simultaneously using two measures of liquidity (one of them capturing liquidity’s trading-quantity dimension, and the other associated with its price-impact dimension). Unlike the CAPM and Fama-French factor models, the advocated two-factor model is able to account for numerous return anomalies, such as size, book-to-market ratio, earningsto- price ratio, cash-flow-to-price ratio, return-on-equity, and volatility. The model’s performance is similar when applied separately to the Shanghai and Shenzhen stock markets. Furthermore, it fares similarly over the 1994-2004 and 2005-2019 sub-periods. This result is somewhat surprising, because liquidity seems likely to have been substantially lower over 1994-2004, as the Chinese markets were noticeably smaller, and the critical market reform aimed at eliminating non-tradable shares by the end of 2006 did not occur until 2005. | |
| dc.description.comments | This is a manuscript of an article published as Zhang, Tianyang, and Sergio H. Lence. "Liquidity and asset pricing: Evidence from the Chinese stock markets." The North American Journal of Economics and Finance 59 (2022): 101557. doi:10.1016/j.najef.2021.101557. Posted with permission. This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License. | |
| dc.identifier.uri | https://dr.lib.iastate.edu/handle/20.500.12876/azJ4XDRv | |
| dc.language.iso | en | |
| dc.publisher | © 2021 Elsevier Inc. | |
| dc.source.uri | https://doi.org/10.1016/j.najef.2021.101557 | * |
| dc.subject | Chinese stock markets | |
| dc.subject | Liquidity | |
| dc.subject | Two-factor model | |
| dc.subject | Size effect | |
| dc.subject | Value effect | |
| dc.subject | Return anomalies | |
| dc.subject.disciplines | DegreeDisciplines::Social and Behavioral Sciences::Economics::International Economics | |
| dc.subject.disciplines | DegreeDisciplines::Social and Behavioral Sciences::Economics::Finance | |
| dc.title | Liquidity and asset pricing: Evidence from the Chinese stock markets | |
| dc.type | Article | |
| dspace.entity.type | Publication | |
| relation.isAuthorOfPublication | 3c26c85e-921b-4cd2-b2e9-e0ea81c43adb | |
| relation.isOrgUnitOfPublication | 4c5aa914-a84a-4951-ab5f-3f60f4b65b3d |