Recent years have witnessed significant improvement of liquidity in Shanghai stock market, demonstrated by a prominent decrease in both ask-bid spread and price impact cost and a fairly large trading volume.
Compared with previous years, the intraday volatility in 2011 presented similar features. Liquidity bottoms at the opening time (caused by the cost of block transaction, price-impact index, and relatively wide ask-bid spreads. It begins to improve one hour later and presents an upwards trend till the market closing.
Past indirect trading costs demonstrates a downtick of the price impact index and therefore an improvement of market liquidity. Take 0.1 million-transaction price impact cost in 2011 for example, it is 15 bps in 2011. Classified by different plates, SSE 50 constituent stocks enjoy the lowest price impact cost. By free-flow market cap, there is a negative correlation between the cap and the price. By industry sectors, stocks in finance, insurance, and mining industries have the lowest price impact index while stocks in social services the highest.
In 2011, the liquidity index, namely the average value of the ask-amount needed to push up the price by 1% and the bid-amount needed to pull down the price by 1%, is RMB 3.46 million, which is slightly higher than 3.87 million in 2010. Classified by different plates, SSE 50 constituent stocks show the highest liquidity while the B share the lowest. The amount needed to pull up or down SSE 50 constituent stocks by 1% is RMB 15.63 million and RMB 0.55 million for B share.
From the ask-bid spread, it is shown that both the relative and relative effective spreads in 2011, 16 bps and 32 bps respectively, are almost the same as those in 2010, of which the SSE 50 constituent stocks and SSE 180 constituent stocks have the smallest spread of 15 bps.
As for the market depth, a continuing large value is the main trend. In 2011, the order depth on the top 5 price notch is CNY 3.51 million and CNY 6.87 million for the top 10 price notch.
For the cost for the block transaction, in 2011 the 3 million-transaction price impact index is 113 bps which represents an 8% increase from 2010.