&Quot;Commonality in Liquidity: the Effects, Sources, and Pricing in the Taiwan Stock Markets&Quot;
|關鍵字:||流動性;共變;委託單;散戶;台灣;Liquidity;Commonality;Order flow;Retail traders;Taiwan|
變數為風險因子的基礎，再使用Fama and French (1993)的投資組合方法建構風險因子，最後則比較CAPM 和Fama-French 三因子模型在納入流動性因子前後的表現，
Liquidity commonality refers to the phenomenon whereby the individual firm's liquidity is at least partly determined by market-wide factors. Common liquidity movements imply that liquidity risk is more than idiosyncratic shocks that affect individual stock one at a time. It may be market-wide and can not be reduced by diversification. If investors have to bear the systematic component of liquidity risk, they will therefore demand compensation from holding illiquid assets. Whether a group of stocks respond significantly to their common liquidity movement will significantly influence choices made by portfolio managers’ decision that attempt to minimize the liquidity impact of asset positions. This three-year proposal intends to provide a comprehensive investigation to the liquidity commonality in Taiwan stock market by three studies, one in a year. In the year-one project, we examine whether stock liquidity show common movements and the extent to which the commonality in liquidity explain the liquidity of individual stocks. Using a variety of liquidity proxies, the study will explore the degree to which individual stock liquidity is correlated with market-wide measures of liquidity. The study also analyzes some important cross-sectional and time-series liquidity characteristics, for the overall market, including large versus small firms, index versus non-index stocks, bull versus bear markets, and calm versus turmoil markets. In the year-two project, we will explore the factors that determine the cross-sectional variation in liquidity commonality. The study relates each firm’s sensitivity to the common liquidity to firm characteristics that potentially explain the cross-sectional divergence of liquidity commonality. The explanatory variables include firm size, institutional ownership, index inclusion, foreign investor accessibility, media coverage, return volatility, degree of order imbalance, etc. In addition, the paper will study the evolution of liquidity sensitivity of Taiwan stocks over the most recent ten years. The year-two project seeks to provide knowledge about the time-series pattern of commonality and explanation about the cross-sectional divergence of the stock sensitivity to the common liquidity factor. The study bridges the gap between the year-one project that finds a common liquidity factor and year-three project that evaluates the impact of the factor in the pricing model. The third year project completes the study by analyzing whether the liquidity factor is priced and whether investors demand liquidity premium for holding less liquid assets. A liquidity measure will be selected based on the results in the previous two projects and upon which an aggregate market liquidity risk factor will be calculated. The study then tests the liquidity-included capital asset pricing model against the conventional CAPM and Fama-French three factor model. The study will verify the model by examining the time-series pattern of the liquidity premium and the cross-sectional characteristics of the risk loading across portfolios sorted by other proxies of liquidity.
|Appears in Collections:||Research Plans|