The determinants of securities trading activity: evidence from four European equity markets

Abstract

PurposeThe purpose of this paper is to obtain new empirical evidence about the connections between equity trading activity and five possible liquidity determinants: market capitalisation, dividend yield, earnings yield, company growth and the distinction between recently listed firms as opposed to more established ones.Design/methodology/approachThe authors use a sample of 172 stocks from four European markets and estimate models using the entire sample data and different sub-samples to check the relative importance of the above determinants. The authors also conduct a factor analysis to re-classify the variables into a more succinct framework.FindingsThe evidence suggests that market capitalisation is the most important trading activity determinant, and the number of years listed ranks thereafter.Research limitations/implicationsThe positive relation between trading activity and market capitalisation is in line with prior literature, while the findings relating to the other determinants offer further empirical evidence which is a worthy addition in view of the contradictory results in prior research.Practical implicationsThis study is of relevance to practitioners who would like to understand the cross-sectional variation in stock liquidity at a more detailed level.Originality/valueThe originality of the paper rests on two important grounds: the authors focus on trading turnover rather than on other liquidity proxies, since the former is accepted as an important determinant of the liquidity-generation process, and the authors adopt a rigorous approach towards checking the robustness of the results by considering various sub-sample configurations.