ABSTRACT
Market liquidity can reflect whether financial market conditions are favorable and is the primary concern for investors when making investment decisions. Therefore, investors' psychological perception and confidence in the quality of products (assets) are particularly important. Using 264 of China's online loan platforms from August 2017 to November 2018, we investigate the impact of the negative psychological perceptions of investors on platform liquidity. The empirical results suggest that the negative psychological perceptions of investors reduce platform liquidity and increase platform liquidity risk. Using the Baidu Search Index to measure investor sentiment, we find that the negative psychological perceptions of investors affect platform liquidity by affecting investor sentiment, which provides a good channel for explaining the main conclusions. Heterogeneity analysis shows that the impact of the negative psychological perceptions of investors on platform liquidity is smaller in high-quality platforms with higher market share and higher registered capital. Meanwhile, we also find that the impact of negative psychological perceptions of investors is greater in private platforms, after the rectification policy, with positive net inflow, and in first- and second-tier cities and coastal cities. Precautionary financial regulatory policies are necessary, not punishment ex post. The research findings of this article can assist investors, platform managers, and regulatory agencies in identifying the liquidity characteristics of platforms, which can contribute to strengthening market liquidity management and financial risk control and provide some reference and support for formulating sustainable development policies in the financial industry.
