Trade Duration and Liquidity of Chinese Stock Market

This paper investigates the relationship between trade duration and liquidity of Chinese stock market. Using data of ten stocks, we employ a Weibull ACD model to decompose trade duration into two components: the expected and the unexpected duration. Then we analyze whether trade duration affects liquidity with regressions. We find that there exists a strong dependence between consecutive durations especially for liquid stocks. Both the expected and unexpected duration could explain the variation of bid-ask spread but the evidence is mixed in the depth equation. The unexpected duration contributes more to the change in liquidity than the expected duration. (C) 2013 The Authors. Published by Elsevier B.V.