Intraday Liquidity Shock and Price Elasticity as an Equity Factor

Summary

The report summary describes an equity liquidity factor built from the magnitude of short-term price moves and how long liquidity shocks persist. Its approach uses relationships between two intraday price stages to measure liquidity effects, while using medium- to long-horizon return volatility as a proxy for information shocks that should be filtered out. The resulting price-elasticity factor is intended to isolate liquidity pressure more cleanly than conventional turnover or illiquidity measures.

The supplied summary reports monthly portfolio tests from 2007 through mid-2020 across broad Chinese equity universes, excluding suspended, specially flagged, and recently listed stocks. It says the factor showed selection efficacy and retained incremental information after neutralizing market capitalization and industry effects, and after orthogonalization against turnover and illiquidity factors. These are reported study results rather than independently verifiable evidence here: the full paper is linked but not included, and the summary gives limited detail on implementation, costs, and robustness beyond the stated tests.

Key ideas

• The factor measures liquidity shocks using short-term price movement size and shock persistence.
• Intraday price relationships are used to estimate liquidity effects, while longer-horizon volatility proxies information shocks.
• The reported tests cover Chinese equity universes with monthly rebalancing and several stated stock exclusions.
• The summary reports signal strength after market-capitalization and industry neutralization.
• It also reports incremental information beyond turnover and illiquidity factors, though the full paper is not provided.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.