Abstract: This paper explores the dynamic relations between the liquidity and the rate of return for time series characteristic by using the data of Chinese stock market,and constructs a time varying parameter model based on the state-space model. The major findings are as follows:with the background of excess liquidity in recent years,macro-liquidity coefficient of elasticity show an upward trend Besides,the coefficients elasticity in energy,steel,and financial sectors experienced more dramatic fluctuations,while the pharma-ceutical industry is less sensitive to time-varying elasticity coefficient. As the development of Chinese stock market,security market (micro-liquidity) coefficient of elasticity gradually stabilizesg.

Key words: liquidity, rate of return, variable-parameter model, coefficient of dynamic elasticity