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ize or book-to-market ratio (Datar et al, 1998; Jun, Marathe & Shawky, 2003; Zhang & Liu, 2006). Furthermore, in this study, turnover is used as a more appropriate proxy for liquidity rather than the bid-ask spread ratio in the prior studies, since some researches proved that bid-ask spread ratio works poorly when the study adopts the long-term monthly spread structure and considers the issue such as transaction costs (Datar et al, 1998; Zhang & Liu, 2006). Also, there is little research to evaluate the effect of liquidity on Greater China markets as a whole when applying these study methods together. Therefore, this research gap motivates me to conduct the research that combines these new features to test effect of liquidity based on Greater China market data to provide my own evidence for this debate.

Literature Review文学评论

In 1986, Amihud & Mendelson made the first contribution for the study on the relationship between different level of liquidity of stocks and the corresponding required rate of returns. In their paper, the bid-ask spread ratio is adopted as proxy of liquidity and the empirical results show that the liquidity of the securities is negatively related to its return (Amibud & Mendelson, 1986). After their works, many scholars follow the same methodology or adapt to employ new proxy for the liquidity such as trading volume per daily, firm-level quoted bid-ask spreads and price-weighted liquidity ratio to test effect of liquidity using the data that most of them comes from the developed financial markets (Brennan, 1998; O’ Hara, 2003; Glascock & Hung, 2008). Similar works for negative liquidity-return relations depending on different proxy of liquidity also have as follows like, Watanabe et al (2008) employ proxy of two distinct liquidity betas states (high or low) to study the effect of aggregate liquidity fluctuations to stock returns. Because the high liquidity-beta state is valid in the short-time period and characterized by heavy trade, high volatility, and a wide cross-sectional dispersion in liquidity betas, scholars adopt liquidity risk premium, amounting to more than twice the value premium, as robustness tests to explain whether the pricing of liquidity risk vary over time and prove the previous assumption but have an additional condition limit, that it, the high liquidity-beta state exactly represents high volatility and a wide cross-sectional dispersion in liquidity betas prior to a period of declining expectations about future market liquidity; similarly, high liquidity-beta state is lived shortly and even occurs less than one-tenth of the time (Watanabe et al, 2008). In order to eliminate bias, scholars assume to use order flow data to investigate the effect of liquidity to stock return across liquid and illiquid trading in the high liquidity-beta state and multivariate dynamics of liquidity, volume, and volatility effect to asset pricing in the later study (Watanabe et al, 2008). Pereira and Zhang (2007) are actually practical proof and reinforce the theory proposed in Chordia, Subrahmanyam and Anshuman (2001) literature. This paper provides an empirical analysis to consolidate liquidity-return relation analysis through modeling liquidity as a stochastic price impact and liquidity premium as the additional return that compensate a multi-period investor due to the adverse price impact of trading, especially captures the point on liquidity variation over time本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。