The Comparison Study of Liquidity Measurements on the Chinese Stock Markets

Yang Gao, Wandi Zhao and Mingjin Wang

Emerging Markets Finance and Trade, 2022, vol. 58, issue 2, 483-511

Abstract: The measurement of liquidity is the basis of research in market microstructure studies. Based on the intraday tick trading data on Chinese stock markets from 2009 to 2016, we run horseraces of monthly estimates of newly and widely employed low-frequency liquidity proxies in the literature against three types of bid-ask spread high-frequency benchmarks. The empirical results reveal that the closing percent quoted spread estimator has the smallest estimation error, and the FHT estimator has the highest correlation. Moreover, these two estimators win the majority of horseraces in terms of estimation error and correlation comparison with the high-frequency benchmarks. Meanwhile, we find that most liquidity estimators based on Roll’s model do not perform well. Because the performance metrics of estimation precision or correlation performance on related liquidity issues differ depending on the type of research, our study offers appropriate liquidity measures for different research purposes.

Date: 2022
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DOI: 10.1080/1540496X.2019.1709819

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