Abstract:
Against the backdrop of rapid expansion in China's ETF market, elucidating how liquidity service mechanisms optimize liquidity supply structure and facilitate timely correction of ETF price deviations holds significant practical implications. This study employs the phased implementation of liquidity service mechanisms by Shanghai and Shenzhen Stock Exchanges as a quasi-natural experiment, utilizing monthly data from equity ETFs and constructing a stacked difference-in-differences model to systematically evaluate policy effects. The findings reveal that following ETF inclusion in liquidity service mechanisms, premium-discount rate volatility significantly decreases, an effect that withstands multiple robustness tests. The mechanisms operate through three channels: first, continuous bilateral quotations reduce trading frictions, thereby enhancing arbitrage transaction executability and accelerating price deviation correction; second, by stipulating minimum quotation quantities, the mechanism improves market capacity to absorb and buffer large orders, reducing the marginal price impact of substantial transactions; third, through stable order book supply, temporary noise and non-fundamental shocks in prices are absorbed more rapidly by the market, price reflection of net asset value information becomes more timely, and premium-discount rates revert to equilibrium levels within shorter timeframes. Heterogeneity analysis indicates that policy effects are more pronounced during periods of low market returns, periods of elevated benchmark index volatility, and for ETFs with smaller scale and initially poorer liquidity. This study provides empirical evidence for improving liquidity service resource allocation and offers insights for strengthening capital market foundational institutions and promoting high-quality development of the ETF market.
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