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.