The rise of automated trading systems has made stock trading more accessible and convenient, reducing the link between traditional illiquidity measures and stock returns. However, empirical data in China’s stock market shows conflicting results. We find a significantly positive correlation between intraday illiquidity and future returns in China’s stock market. We offer that the pricing ability of this intraday illiquidity originates from the correlation between trading activity and intraday return. This finding provides compelling out-of-sample evidence for the debate regarding the pricing of the Amihud (2002) measure in the U.S. market. Additionally, we create an intradayreturn illiquidity factor that outperforms Liu, Stambaugh, and Yuan (2019) sentiment factors in China’s stock market.

In this paper, we show that only the systematic component of exchange rate expectations of professional investors is a strong predictor of the cross-section of currency returns. The predictability is strong in short and long horizons. The strategy offers significant Sharpe ratios for holding periods of 1 to 12 months, and it is unrelated to existing currency investment strategies, including risk-based currency momentum. The results hold for forecast horizons of 3, 12, and 24 months, and they are robust after accounting for transaction costs. The idiosyncratic component of currency expectations does not contain important information for the cross-section of currency returns. Our strategy is more significant for currencies with low sentiment and it is not driven by volatility and illiquidity. The results are robust when we extract the systematic component of the forecasts using a larger number of predictors.

To avoid illiquidity spillovers and basis risk in swaps, interbank lenders are especially cautious about whether interbank borrowers can meet their claims. We examine whether the incentive of interbank lenders to penalize risky borrowers can reduce borrowers' liquidity risk taking. We find that interbank borrowers, especially small and medium banks, manage their liquidity risks more prudently than their counterparts. This phenomenon is especially significant for borrowers with high information asymmetry, low liquidity buffers, and high funding gaps. Our results suggest that interbank exposure reduces the asset, funding, and off‐balance‐sheet liquidity risks of small and medium borrowing banks, and can therefore supplement regulatory liquidity requirements, which target only the largest banks.

Drifting in the direction of earnings surprises for a prolonged period is a decades-puzzling financial anomaly, i.e., the “post-earnings-announcement drift” (PEAD). This paper provided a new simple measure of earnings surprise called ORJ. Based on ORJ, not only is the medium effect of investors’ attention on the relationship between earnings surprises and PEAD analyzed, but a tractable and profitable investing strategy is provided. Through comprehensive empirical analysis of the Chinese stock market, we found that i) both earnings surprises and investor attention can increase the degree of PEAD; ii) “good” (bad) earnings surprises strengthen (weaken) the degree of drift by attracting (decreasing) investor attention; it is asymmetric that the positive effects of “good” earnings surprises are stronger than that of “bad” earnings surprises on PEAD; and iii) the strategy obtains an average 6.78% return per quarter in excess of the market and only longs dozens of stocks . iv) Typical pricing factors such as the Fama-French three factors, illiquidity and company characteristics have little explanatory power for the returns of the strategy. This paper strongly shows the importance of monitoring overnight returns of earnings announcements to digging the unexpected information, reveals one mechanism of earnings surprises on PEAD and demonstrates the potential profitability of PEAD in the Chinese market.

This work models the spillover of liquidity and volatility and their joint dynamics in the Chinese stock market. Methodologically, we implement a copula-based vector multiplicative error model for sectors. Utilizing intraday data from 2014 to 2022, our empirical analysis reveals strong interdependence between liquidity and volatility at the sectoral level. Moreover, different sectors dominate the transmission of liquidity and volatility shocks at different times. In normal times, sector volatilities transmit shocks notably (though not always dominantly), while in turbulent times, illiquidity is the key channel through which shocks spread. We also pay special attention to how two catastrophic events impacted the Chinese stock market: the 2015/16 stock market crash and the COVID-19 pandemic. Our ffndings are useful for policymakers monitoring and making policy at the sectoral level, as well as for institutional and private investors making investment decisions.

This study investigates and compares the effects of the Coronavirus Disease 2019 (COVID-19) pandemic, the Chicago Mercantile Exchange (CME)'s negative price suggestion on prices and trading activities in the crude oil futures market to discuss the cause of negative crude oil futures prices. Through event studies, our results show that the COVID-19 pandemic no longer impacts crude oil futures prices in April after controlled market risk, while the CME’s negative prices suggestion can explain the crude oil futures price changes around and around even after April 8 to some degree. Moreover, our study uncovers anomalies in prices and trading activities by analyzing returns, trading volume, open interest, and illiquidity measures using vector autoregressive (VAR) models. The results imply that CME’s allowing negative prices strengthens the price impact on trading volume and makes illiquidity risk matter. Our results coincide with the following lawsuit evidence of market manipulation.

In this paper, using data for the period January 1995 to May 2009 for the Shanghai stock exchange (SHSE), we show that aggregate illiquidity is a priced risk factor. We develop the relationship between the illiquidity factor, asymmetric information, and market collapse. Our empirical results show that while the illiquidity factor is a source of asymmetric information on the SHSE, asymmetric information does not trigger a market collapse.

If liquidity or illiquidity shocks reduce returns, then such risks need to be priced. The goal of this paper is to examine whether liquidity or illiquidity shocks increase or decrease returns on the Shanghai and Shenzhen stock exchanges. Our measure of illiquidity is the widely used Amihud’s (2002) ILLQ measure, and we proxy liquidity with the trading volume (TV), the turnover rate (TR), and the trading probability (TP). Using daily data for the period 1993 to 2003, we find weak evidence of the illiquidity shock having a negative effect on returns on both exchanges, and while greater cases of a positive effect of liquidity factors on returns is documented, very few of these are statistically significant. Hence, contrary to the extant literature, we find weak evidence in favour of pricing liquidity on the Chinese stock market.

This paper extends Lerner and Schoar’s (2004) argument on illiquidity puzzle of private equity funds. We examine the roles that investment illiquidity, along with bounded rationality and rent-seeking behavior, plays in private-equity buyouts. Collectively, investors employ club deals to screen out fund managers who might misuse discretionary rights to engage buyout deals. A club deal is launched by a group of private equity firms that pool their assets together, make a joint bid for a buyout target, and monitor the buyout processes collectively. Thus, this paper aims at clarifying whether or not such discretionary rights improve the choice of buyout target by, as well as the performance of private equity funds. We found that the performance of buyout funds persisted and affected the choice of the club deal as the major monitoring mechanism. This paper contributes to our understandings of investment behavior in private equity buyouts as follows. First, the performance of buyout funds has improved for at least two time periods between 1999 and mid-2007. The phenomenon that fund performance affects the choice of club deals is consistent across a variety of private equity funds, such as buyout, venture, growth, and mezzanine funds. Moreover, risk preference does not affect choice of club deals directly; instead, it has a moderating effect on choice of club deals through its interaction with the location of reference point for risk aversion. Finally, both fund size and fund sequence have U-shaped relations to the choice of club deals, while deal value of buyouts is related positively to the choice of club deals.

In this paper, based on Acharya and Pedersen’s [Journal of Financial Eco- nomics (2006)] overlapping generation model, we show that liquidity risk could influence the market risk forecasting through at least two ways. Then we argue that traditional liquidity adjusted VaR measure, the simply adding of the two risk measure, would underestimate the risk. Hence another approach, by modeling the liquidity adjusted returns (LAr) directly, was employed to incorporate liquidity risk in VaR measure in this study. Under such an approach, China’s stock market is specifically studied. We estimate the one-day-ahead “standard” VaR and liquidity adjusted VaR by forming a skewed Student’s t AR-GJR model to capture the asymmetric effect, non-normality and excess skewness of return, illiquidity and LAr. The empirical results support our theoretical arguments very well. We find that for the most illiquidity portfolio, liquidity risk represents more than 22% of total risk. We also find that simply adding of the two risk measure would underestimate the risk. The accuracy testing show that our approach is more accurate than the method of simply adding.