High-Frequency Liquidity in the Chinese Stock Market: Measurements, Patterns, and Determinants

77 Pages Posted: 22 Aug 2022

See all articles by Ruixun Zhang

Ruixun Zhang

Peking University; MIT Laboratory for Financial Engineering

Chaoyi Zhao

Peking University

Yufan Chen

Peking University

Lintong Wu

Peking University

Yuehao Dai

Peking University

Ermo Chen

Peking University

Zhiwei Yao

Peking University

Yihao Zhou

Peking University

Lan Wu

Peking University

Date Written: August 16, 2022

Abstract

We explore a broad range of high-frequency liquidity measures for the Chinese stock market, based on a comprehensive tick-level dataset for stocks on the Shenzhen Stock Exchange (SZSE) with approximately 16.7 billion events in 2020. We integrate the raw event-level data into a granular and continuous limit order book for each stock for the entire year. We summarize their liquidity levels and key distributional properties. Hypothesis tests show that order interarrival times follow Weibull---not exponential---distributions, implying that Poisson flow is not an appropriate model for order flow in the Chinese stock market. We analyze the intraday and cross-sectional patterns of liquidity, and find novel intraday periodicities in liquidity at whole-minute frequencies such as 1-minute, 5-minute, and 10-minute. Finally, we propose the aggressive-passive imbalance (API), analogous to the order flow imbalance of Cont, Kukanov, and Stoikov (2014), and develop an order-based model of the change in bid-ask spread that sheds light on the universal mechanism of spread formation with respect to order flows. To the best of our knowledge, this is by far the most comprehensive study of market liquidity for the Chinese stock market in the literature.

Keywords: Market liquidity, Tick-level data, Bid-ask spread, Aggressive-passive imbalance, Chinese stock market

JEL Classification: C55, C58, G12, G14, G20

Suggested Citation

Zhang, Ruixun and Zhao, Chaoyi and Chen, Yufan and Wu, Lintong and Dai, Yuehao and Chen, Ermo and Yao, Zhiwei and Zhou, Yihao and Wu, Lan, High-Frequency Liquidity in the Chinese Stock Market: Measurements, Patterns, and Determinants (August 16, 2022). Available at SSRN: https://ssrn.com/abstract=4191675 or http://dx.doi.org/10.2139/ssrn.4191675

Ruixun Zhang

Peking University ( email )

5 Yiheyuan Road
Beijing, Beijing 100871
China

HOME PAGE: http://www.math.pku.edu.cn/teachers/ZhangRuixun%20/index.html

MIT Laboratory for Financial Engineering

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

Chaoyi Zhao (Contact Author)

Peking University ( email )

No. 5 Yiheyuan Road
Beijing
China

HOME PAGE: http://zhaochaoyi.github.io/

Yufan Chen

Peking University ( email )

Lintong Wu

Peking University ( email )

Yuehao Dai

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Ermo Chen

Peking University ( email )

Zhiwei Yao

Peking University ( email )

Yihao Zhou

Peking University ( email )

Lan Wu

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

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