Abstract
In this study we provide evidence regarding the effect of macroeconomic uncertainty on stock market liquidity by analyzing the time-series relation between both types of macroeconomic uncertainty shocks: good and bad uncertainty and various measures of liquidity. Our study also sheds light on whether the impact of macroeconomic uncertainty on liquidity varies with information environment by examining the effects of investor competition over information on the relation between good and bad uncertainty and liquidity in the Taiwan markets. We find that there is a negative (positive) relation between bad (good) uncertainty and the subsequent liquidity of stocks. We also find that the magnitude of the impact of bad uncertainty on stock market liquidity is larger than good uncertainty. On the other side, macroeconomic uncertainty would exerts a larger impact on liquidity when the market is imperfectly competitive.
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