The heterogeneous impact of liquidity on volatility in Chinese stock index futures market

Yanyan Xu, Dengshi Huang, Feng Ma and Gaoxiu Qiao

Physica A: Statistical Mechanics and its Applications, 2019, vol. 517, issue C, 73-85

Abstract: This paper first investigates the heterogeneous impact of liquidity on volatility by using the intraday data of the Chinese stock index futures market. Based on the quantile regression method, we obtain several noteworthy findings. First, in sample result shows that illiquidity can significantly increase volatility at the right tail, which seems to be a notable J-shaped relationship between the illiquidity and volatility in Chinese stock index futures market. Second, the effects of the illiquidity on past negative returns (“bad news”) are much stronger than on past positive returns (“good news”). Third, by documenting the intraday pattern of the illiquidity, the highest impact of the illiquidity on volatility occurs in the last half-hour rather than in the first half-hour of each trading day.

Keywords: Index futures; HAR model; Illiquidity; Realized volatility; Heterogeneous (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:517:y:2019:i:c:p:73-85

DOI: 10.1016/j.physa.2018.11.020

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