Commonality in Liquidity in Emerging Markets : Evidence from the Chinese Stock Market

In this paper, we examine four specific hypotheses relating to commonality in liquidity on the Chinese stock exchanges. These hypotheses are: (a) that market-wide liquidity determines liquidity of individual stocks; (b) that liquidity varies with firm size; (c) that market liquidity affects stock liquidities of different industries; and (d) that commonality in liquidity has an asymmetric effect. Based on a two-year data on the Shanghai and Shenzhen stock exchanges comprising of over 34 and 48 million transactions respectively, we find strong support in favor of the entire hypotheses