Liquidity Impact on Sector Returns of Stock Market : Evidence of China

Based on the model of weighted nonparametric estimation, the study aims to investigate liquidity impact on sector returns in Stock Exchanges in China. The two results are empirically shown using the data of financial services, traffic facilities, and nonferrous metals sectors from Shanghai and Shenzhen Stock Exchanges. First, negative relationship between return and liquidity is found and the expected returns of sectors are obviously reduced with liquidity impact. Second, the expected return of finance sector witnesses a weaker liquidity impact than the ones of traffic facilities and nonferrous metal sectors