The aim of this paper is to empirically analyze the source of commonality in liquidity change in China's stock market.
This paper used two‐step test method in Coughenour and Saad and empirically tested the relationship between institutional investors' involuntary trading behaviors and commonality in liquidity change in China's stock market.
The results showed that to take the open‐end fund as a representative of institutional investors, their involuntary trading behaviors were an important source of commonality in liquidity change in China's stock market.
For a long time, the domestic researchers have ignored the study about the source of commonality in liquidity change in China's stock market. But, this study's conclusion expanded the explanation about the source of commonality in liquidity change in China's stock market from a new point of view that the demand‐side explanation. Because there is no market‐maker trading behaviors in China's stock market, the paper cannot explain the source of commonality in liquidity change in China's stock market from the point of view of the supply‐side explanation.
