 Risk of holding stocks with liquidity sensitive to market uncertainty: evidence from ChinaPing‐Wen Sun, Yifan Shen, Meifen Qian and Wu Yan Accounting and Finance, 2021, vol. 61, issue S1, 1993-2029 Abstract: We investigate the determinants of stocks’ uncertainty elasticity of liquidity (UEL), whether UEL is priced, and how government officials may use national funds to reduce the UEL risk in China’s A‐shares market. We find that stocks with higher UEL have a smaller market capitalisation, lower stock liquidity, less investor attention, and higher market and liquidity risks. Using data from 2004 to 2018, we show that the highest UEL decile portfolio significantly outperforms the lowest UEL decile portfolio by 0.54 percent per month. Moreover, our results show that UEL provides additional explanatory power for stock returns after we control for a stock’s transaction cost, firm characteristic risks, market risk and liquidity risk. As UEL is an important systematic risk, we hypothesise that government officials will take actions to reduce this risk when the market becomes more volatile. Consistent with our hypothesis, our results show that the ‘national team’ provides liquidity by executing trades opposite to those of other institutional investors during the 2015 stock market crisis in China. Date: 2021 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:acctfi:v:61:y:2021:i:s1:p:1993-2029 Ordering information: This journal article can be ordered from Access Statistics for this article Accounting and Finance is currently edited by Robert Faff More articles in Accounting and Finance from Accounting and Finance Association of Australia and New Zealand Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.