Cross-sectional fluctuation scaling in the high-frequency illiquidity of Chinese stocks

¹ Department of Finance, East China University of Science and Technology - Shanghai 200237, China
² Research Center for Econophysics, East China University of Science and Technology - Shanghai 200237, China
³ Department of Mathematics, East China University of Science and Technology - Shanghai 200237, China
⁴ Center for Polymer Studies and Department of Physics, Boston University - Boston, MA 02215, USA

^(a) wxzhou@ecust.edu.cn

Received: 29 March 2018
Accepted: 6 April 2018

Abstract

Taylor's law of temporal and ensemble fluctuation scaling has been ubiquitously observed in diverse complex systems including financial markets. Stock illiquidity is an important nonadditive financial quantity, which is found to comply with Taylor's temporal fluctuation scaling law. In this paper, we perform the cross-sectional analysis of the 1 min high-frequency illiquidity time series of Chinese stocks and unveil the presence of Taylor's law of ensemble fluctuation scaling. The estimated daily Taylor scaling exponent fluctuates around 1.442. We find that Taylor's scaling exponents of stock illiquidity do not relate to the ensemble mean and ensemble variety of returns. Our analysis uncovers a new scaling law of financial markets and might stimulate further investigations for a better understanding of financial markets' dynamics.