Impact of Financial Liberalisation on Stock Market Liquidity: Experience of China

Jess Lee and Alfred Wong
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Jess Lee: Research Department, Hong Kong Monetary Authority
Alfred Wong: Research Department, Hong Kong Monetary Authority

No 903, Working Papers from Hong Kong Monetary Authority

Abstract: This paper assesses the impact of the recent financial reforms in China. Following the country¡¯s accession to the World Trade Organization, financial liberalisation has picked up considerable momentum. Measures introduced encompass deregulation in the banking sector and refinements in various financial markets, as well as allowing more freedom for Chinese and foreign investors to participate and interact domestically and overseas. Compared to other studies on financial liberalisation, this study focuses on a relatively narrower aspect of financial reforms namely, the impact on stock market liquidity. Using a panel data set drawn from the Shanghai stock market, we find a positive and significant liquidity impact associated with the recent round of measures, which reflects not only an improvement in capital allocation efficiency in China¡¯s equity market but, from a financial stability point of view, also a reduction in its vulnerability. The finding also provides evidence on one of the important channels in which financial liberalisation can be transformed into economic growth over time.

Keywords: Financial liberalisation; liquidity; dual-listed stocks; stock exchanges; fixed-effect panel regression (search for similar items in EconPapers)
JEL-codes: C33 F36 G18 G32 L22 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2009-01
New Economics Papers: this item is included in nep-cna, nep-fdg and nep-tra
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:hkg:wpaper:0903

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