Systematic Liquidity Risk and Systematic Liquidity Premium:Empirical Research on Chinese Stock Market

The liquidity premium theory states that the return for stock with low liquidity must be higher as the investors prefer to hold the stock with high liquidity.However,some of the empirical researches do not support the theory.The difference of systematic liquidity and firm-specific liquidity is documented,and the importance of systematic liquidity to institutional investors is verified.Furthermore,this paper constructs measure for systematic liquidity,and analyzes the liquidity premium in Chinese stock market.As a conclusion,there exists negative liquidity premium in China.Finally,the paper shows that the systematic liquidity risk for firm stock is associated with owner structure in the firm.