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International Conference on Management Science and Engineering Management

ICMSEM 2020: Proceedings of the Fourteenth International Conference on Management Science and Engineering Management pp 240–258Cite as

The Causality Between Liquidity and Volatility: New Evidence from China’s Stock Market

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Part of the Advances in Intelligent Systems and Computing book series (AISC,volume 1190)

Abstract

In the causality framework, this paper aims to thoroughly investigate the relationship of liquidity and volatility in China’s stock market. Not only nonlinear Granger causality test but also time-varying VAR model and quantile regression are conducted in order to provide an informative picture for investors in this emerging stock market. Overall, their relationship in China’s stock market is bi-directional, however, the non-linear causality from liquidity to volatility is more significant. Furthermore, their relationship is dynamic and varies over time. When the market is in a turbulent period, the dynamic effect of liquidity on volatility is more remarkable than it is when the market is in a stable period. These findings could benefit stock market investors in the context of risk management and portfolio allocation.

Keywords

  • Stock market
  • Liquidity
  • Volatility
  • Quantile regression
  • Granger causality

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Acknowledgements

The authors are grateful for financial support from the National Natural Science Foundation of China [71901158], the China Postdoctoral Science Foundation [2018M643512], the Full-time Postdoctoral Research and Development Funds of Sichuan University [skbsh2019-41], the Fundamental Research Funds for the Central Universities [2019B02], the Sichuan Social Science Planning Project [SC18C014], and the Innovation Spark Project of Sichuan University [2018hhf-42].

Author information

Authors and Affiliations

  1. Business School, Sichuan University, Chengdu, 610064, People’s Republic of China

    Jing Liu & Chengzheng Zhu

  2. School of Science, Xihua University, Chengdu, 610039, People’s Republic of China

    Yanyan Xu

Authors
  1. Jing Liu
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  2. Yanyan Xu
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  3. Chengzheng Zhu
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Corresponding author

Correspondence to Yanyan Xu .

Editor information

Editors and Affiliations

  1. Business School, Sichuan University, Chengdu, China

    Prof. Jiuping Xu

  2. Academy of Sciences of Moldova, Chisinau, Moldova

    Prof. Gheorghe Duca

  3. Faculty of Math and Science, Brock University, Hamilton, ON, Canada

    Prof. Dr. Syed Ejaz Ahmed

  4. ETSI Industriales de Ciudad Real, University of Castile-La Mancha (UCLM), Ciudad Real, Spain

    Fausto Pedro García Márquez

  5. Institute of Control Systems, Azerbaijan Natl Academy of Sciences, Baku, Azerbaijan

    Asaf Hajiyev

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Liu, J., Xu, Y., Zhu, C. (2020). The Causality Between Liquidity and Volatility: New Evidence from China’s Stock Market. In: Xu, J., Duca, G., Ahmed, S., García Márquez, F., Hajiyev, A. (eds) Proceedings of the Fourteenth International Conference on Management Science and Engineering Management. ICMSEM 2020. Advances in Intelligent Systems and Computing, vol 1190. Springer, Cham. https://doi.org/10.1007/978-3-030-49829-0_18

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