Market liquidity migration’s effects on the relationship between stock liquidity and stock price crash risk: Evidence from China

Yunshu Tang, Wenyan Xie, Dong Andrew Li and Yaoyun Ruan

The Quarterly Review of Economics and Finance, 2023, vol. 91, issue C, 158-169

Abstract: This research examines the market liquidity’s structural migration in 2016–2017 and its effects on the stock liquidity-risk relationship. We observe and conduct a Granger causality test to empirically verify the ongoing structural migration from small-cap to large-cap stocks in 2016–2017. We then replicate the inverse relationship between stock liquidity and stock price crash risk. We find that the structural migration demonstrates an incremental effect on the inverse liquidity-risk relationship across the board except for the state-owned companies (probably due to their unique nature and favorable perceptions from the investors). Further, robustness tests over the seven-year, three-chairman-term timeline suggest the structural migration prompted by the then Chairman, Liu, an exogenous event to the stock market. Overall, this research elucidates the mechanism underlying the structural migration’s incremental effect on the stock market in general and the state-owned companies in particular, extending the stock liquidity-risk relationship literature to a deeper, more dynamic context.

Keywords: Market liquidity’s structural migration; Granger causality test; Stock liquidity-risk relationship; State-owned companies; “big mouth” management style (search for similar items in EconPapers)
JEL-codes: B23 C12 G15 G28 G31 G32 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:91:y:2023:i:c:p:158-169

DOI: 10.1016/j.qref.2022.10.013

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