Abstract
The purpose of this study is to analyze the behavior, the day-of-the-week regularities and the macroeconomic determinants of aggregate market liquidity of emerging stock markets through studying Amman Stock Exchange (ASE). The study investigates all the stocks traded in ASE over the period 2002-2010. Aggregate market liquidity is measured by several proxies, each reflecting a certain dimension. It is calculated as an average of individual stock liquidity proxies and as a sum of trading activity measures. Aggregate market liquidity shows a fluctuating pattern throughout the study period. It gets worse in the mid-week. Spread and depths show their maximum values on Mondays and Sundays, respectively. The trading activity reaches its minimum on Sunday and its maximum on Thursday. Major macroeconomic factors significantly affect aggregate market liquidity, though; aggregate market return and volatility exercise a larger effect. This study is the first to conduct a comprehensive analysis of aggregate market liquidity in an emerging stock market.
Highlights
Liquidity is a very important feature of financial markets
We argue that there was no direct effect of the global financial crisis on the Amman Stock Exchange (ASE) given its local nature
Fears from the possible effects of the global financial crises on the Jordanian economy have limited their investments in ASE
Summary
Liquidity is a very important feature of financial markets. It is a multi-dimensional phenomenon concerning the quickness and ease of trading without a significant price change. Literature focused on individual stock liquidity and its effect on return. Aggregate market liquidity has been the focus of researchers since the beginning of the last decade. Business organizations, regulators, policy makers and others do concern about the behavior and determinants of aggregate market liquidity given its importance for the functioning of the stock exchanges and for the economy as a whole. This study constructs a comprehensive analysis of aggregate market liquidity in ASE, an emerging stock market, over the period 2002-2010. The analysis includes three main parts; the behavior, the day-of-the-week effect and the macroeconomic determinants
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