عامل ریسک نقدینگی بازار و ناهنجاریهای بازار مالی : شواهدی از بازار بورس چینی

The Chinese stock market is an order-driven market and hence its characteristics are structurally different from quote-driven markets. There are no studies that consider the role of the market liquidity risk factor in determining cross-sectional stock returns in a model including financial market anomalies for order-driven markets. Our aim is to test whether financial market anomalies such as firm size, the book-to-market ratio, the turnover rate, and momentum both with and without the inclusion of the market liquidity risk factor in the case of the Chinese stock market can explain cross-sectional stock returns. The empirical framework is based on the model proposed by Avramov and Chordia (AC, 2006). Our main finding is that the AC model can capture financial market anomalies except momentum when we include the market liquidity risk factor on the Chinese stock market.

A well-known fact in financial economics is that the liquidity of financial assets changes over time. A source of this change in liquidity is the common component in the liquidity across assets, as revealed in the work of, among others, Chordia et al., 2000 and Korajczyk and Sadka, 2008. A related strand of the literature considers the role of the market liquidity risk factor in determining market returns (see, for instance, Pastor and Stambaugh, 2003). This is an important consideration in conventional asset-pricing models. The capital asset-pricing model (CAPM) perceives that the cross-sectional difference in average returns can only be determined by market risk. However, the cross-sectional difference can also be determined by other factors, such as size, market capitalisation, the book-to-market ratio, and past returns (Basu, 1977, Jegadeesh, 1990, Fama and French, 1992, Fama and French, 1993 and Fama and French, 1996). Furthermore, Avramov and Chordia (2006) contend that expected returns can also be explained by non-risk firm characteristics, such as the liquidity risk. The aim of this paper is to examine the cross-sectional stock return model with the market liquidity risk factor on the Chinese stock market and test whether the model can capture financial market anomalies. To test this, we use the approach of Avramov and Chordia (2006). This allows us to address the issue of whether cross-sectional returns can be explained by such factors as size, the book-to-market ratio, the turnover rate, and past returns (momentum) when the market liquidity risk factor is included in the model. Our main contribution is that we examine whether the market liquidity risk factor, obtained using the Pastor and Stambaugh (2003) procedure, explains cross-sectional stock returns for China. In particular, we pose two specific questions, as follows: 1. Do firm specific factors (size, the book-to-market ratio, and the turnover rate) explain Chinese stock returns regardless of the inclusion of the market liquidity risk factor? 2. Does the past return or momentum explain Chinese stock returns regardless of the inclusion of the market liquidity risk factor? Answers to these questions will help us understand whether the market liquidity risk factor is a useful factor that is related to fundamentals and whether it can potentially influence pricing behaviour on the Chinese stock market. Our main motivation is that so far while there is limited work on testing the relationship between cross-section stock returns and financial anomalies, these works have been mainly on developed country markets (US, UK, France and Germany), which are quote-driven markets. Testing this relationship in different market settings may provide different results or fresh insights. In light of this, our focus on the Chinese market is motivated by the fact that unlike the developed country markets, it is an order-driven market. Order-driven markets have substantially different market structures and their dynamic behaviour is, as a result, different from quote-driven markets; this is explained in detail in Section 2. The main contribution of our work to this literature is that we ascertain whether or not other factors (namely size, the book-to-market ratio, the turnover rate, and past returns) determine cross-sectional stock returns both in the absence and presence of the market liquidity risk factor on the Chinese stock market. Briefly foreshadowing the main results, first we find that when the Fama–French factors and the business cycle variable are included in a market liquidity risk factor-based model, the model captures the effects of size, book-to-market ratio, and the turnover rate in explaining cross-sectional stock returns. Second, we find that the market liquidity risk factor model does not capture the momentum effects. The balance of the paper is organised as follows. In Section 2, we discuss the motivation and contribution of this study. In Section 3, we discuss the data, including the measure of the market liquidity risk factor. In Section 4, we discuss the results, and in the final section, we provide some concluding comments.

Current research on the asset-pricing theory has taken issue with the nexus between cross-sectional stock returns and non-risk fi rm characteristics. Market liquidity risk factor has emerged as an important factor in explaining this relationship. The existing literature, however, leaves a critical void in our knowledge, because no research on this relationship has been conducted on emerging markets, particularly those with order-driven markets. This is despite the acceptance that shocks to liquidity were a contributing factor in the Asian fi nancial crisis of 1997 – 1998. This paper, thus, fi lls this existing research gap by studying the case of China. The Chinese stock market is an emerging market and is experiencing extraordinary growth as well as increased risk and volatility. The adoption of an order-driven market structure makes the market that much more complex. Knowledge on how cross-sectional stock returns respond to the market liquidity risk factor can potentially shed new light on whether fi nancial market anomalies can be captured by the conventional asset-pricing model, augmented by the market liquidity risk factor. Using daily data from January 1993 to December 2003 and the Pastor and Stambaugh market liquidity risk factor, we fi nd that size, the book-to-market ratio, and the turnover rate can be captured by the model of Avramov and Chordia (2006) when the market liquidity risk factor is imposed on the Chinese stock market. These results are also robust when we do not include the market liquidity risk factor in the model. We believe that our work sets out a nice research agenda for future work: one that should explore the market liquidity risk factor based on different trading systems and market conditions, and considers the determinants of the market liquidity risk factor. A related avenue for future research could be to consider the impact of the market liquidity risk factor on cross-sectional stock returns of different sectors, such as industrial, fi nancial, and resources, among others.