Stock Liquidity in capital market
Mobility has long been considered as an important determining factor for measure of market quality and efficiency. Liquidity of securities market provides opportunities for investors to transfer trading securities and provide a necessary premise for capital and funding. If the market is illiquid and difficult to complete the transaction, the market lost its need for existence. Amihud & Mendelson (1989) pointed out: “Liquidity is a market for all.” So far, there is no accurate definition and conclusion on liquidity in the academic community, and there is no uniform standard. Different scholars have put forward many different concepts, the paper lists out some important points:
Demsetz (1968) first proposed a bid-ask spread concept, which in fact is the cost of transaction for organized instant market. Bid-ask spread can be used to measure liquidity. Black (1971) pointed out that the market with liquidity is that any number of securities may be immediately to buy or sell closing to the current market price. Bagehot (1971) believe that to judge whether a market need liquidity should consider such factors: the existence of information asymmetry and adverse selection effect of trade on prices, and the market maker’s pricing strategy as a result of some transaction costs. Amiliud & Mendelson (1989) classified the liquidity within a certain time to complete a transaction cost, or search for a reasonable price, the time required. Grossman & Mille: (1955) pointed out that by “the ability to execute trades under the current offer and time” to evaluation the market liquidity. O, Hara (1995) thinks that liquidity is “instant transaction price.”
By comparison, the above definition of mobility though varied, but the main concern is in three areas: transaction costs, trading volume and transaction time. To sum up roughly as follows: If the transaction in the time of their need to be able to quickly lower the transaction costs of buying or selling a large number of stocks, while small impact on the market prices, claimed that the market is moving. Kyle (1985) thought mobility as an integrated concept, because it contains many features of market transactions, such as the width, depth, instant (Immediately) and Resiliency etc.. In the foreign market microstructure research, usually measured from the four angles market liquidity:
Width refers to the degree of transaction price (ie the buyer quotes or the seller quotes) deviate from the median market price, which is the transactions cost for the flow of the asset, usually measured by bid-ask spread. Depth is the best in the current trading prices may be traded under the total transaction amount, or the total number of shares trading. Instant in time refers that transaction can be implemented immediately. Since the stock market is the market, its level of liquidity for securities transactions must first show whether the rapid, unimpeded. Flexibility is that due to a number of transactions led to price deviation from equilibrium price equilibrium level of the speed of recovery. In a flexible measure of market liquidity, price changes will be immediately returned to the efficient level.
