Impact of financial liberalisation on stock market liquidity: experience of China

Jess K.‐Y. Lee and Alfred Y.‐T. Wong

Journal of Chinese Economic and Foreign Trade Studies, 2012, vol. 5, issue 1, 4-19

Abstract: Purpose - The purpose of this paper is to assess 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. Wide‐ranging reforms 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. Design/methodology/approach - Compared to other studies on financial liberalisation, this study uses a panel data regression model to analyse a relatively narrower aspect of financial reforms, namely, the impact on stock market liquidity. Findings - Using a data set drawn from the Shanghai stock market, the authors find a positive and significant liquidity impact associated with the recent round of measures. Originality/value - The result 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: China; Economic growth; Stock exchanges; Liquidity; Financial liberalisation; Dual‐listed stocks; Fixed‐effect panel regression (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jcefts:v:5:y:2012:i:1:p:4-19

DOI: 10.1108/17544401211197922

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