Local stock liquidity and local factors: Fresh evidence from US firms across states

Abstract

Our study explicitly considers the role of a new local factor, i.e., the effect of the fraction of seniors in each US state, of local stock liquidity for a large number of US firms. The analysis provides two potential channels through which this (local) factor can affect local stock liquidity. The results report that this new factor exerts a significant impact on local firm liquidity, with the sign depending on the definition of liquidity being used. In terms of the two channels explored, the findings document the impact of the fraction of seniors on local bank deposits, while young and small firms exert a negative effect on local stock liquidity versus the remaining firms. The findings carry key implications for market practitioners, such as investors, market operators, regulators and academics and other researchers.