The overall market liquidity of the Shanghai Stock Exchange (SSE) has been improving over the last decade, especially in 2009 when the SSE market saw a remarkable improvement in its liquidity thanks to the investors' increasing trading desire as a result of the swift upturn in the stock market, according to the "SSE Market Quality Report (2010)" released by the SSE recently.
According to the analysis on the monthly data of 2009 in the report, the liquidity cost is related to the overall trend and capital of the market. To be specific, the liquidity cost in the 1st half of the year is higher than that in the 2nd half. Besides, the liquidity cost when the market is at a low ebb is higher than that when it is in its prime. The results of different boards show that the liquidity cost of SSE 50 Index's constituents is the lowest, followed by SSE 180 Index's constituents (excluding those of SSE 50 Index), with that of the B shares and ST shares (including *ST shares) the highest. In terms of the stock's float market capitalization, the larger the stock's market cap is, the lower its liquidity cost is. From the viewpoint of the stock price, the higher the stock price is, the lower its liquidity cost is. Last but not least, the stocks in the finance, insurance and mining industries enjoy the lowest liquidity cost while those in the social service sector see the highest one.
According to the calculation result of the liquidity index, namely, the average of the buy-in amount for an increase of 1% in the stock price and the sell-out amount for an decrease of 1% in the stock price, the liquidity index of the SSE market in 2009 was RMB3.74 million, a surge of 146% compared with that in 2008 when the market trading was sluggish.
In addition, with regard to the market depth, thanks to the rebound of the trading volume, the SSE's market depth in 2009 soared from that in 2008, or 149.7% and 148.1% up in its five best bid/ask quotes and ten best bid/ask quotes, respectively. As to the block trading cost, the price impact index resulted from trading RMB3 million stocks was 115 base points in 2009, a drop of 47.7% from that in 2008. All of the intraday volatility rate, excess volatility rate and return volatility rate on the SSE market in 2009 dropped from that in 2008 by 57, 26 and 46 base points, respectively.
It is also pointed out in the report that the pricing efficiency of the Shanghai securities market has been greatly improved over the last decade. Although there was a fall in the intraday market pricing efficiency compared with that in 2007 and 2008, the trans-day market pricing efficiency reflected through the trans-day pricing efficiency coefficient and pricing error boasted a noticeable improvement, which means that the stock pricing errors in a day is able to be corrected within the following trading day. Moreover, with the rise of the market, investors' participation willingness increased. On the one hand, both of the average bid/ask quote and knock-down price were increased. On the other hand, the amounts of order application, conclusion and withdrawal were improved to some extent.