Stock Market Liquidity Research Articles

Impact of Equity Liquidity on Corporate Value—— Based on The Empirical Analysis of China's A-Share Listed Companies

Since the establishment of the Shanghai and Shenzhen Stock Exchange, China's stock market has experienced a development process from scratch, from small to large, and from weak to strong. During this period, the liquidity of China's stock market has increased significantly. The stock market can affect the real economy by changing the motivation and influencing the behavior of enterprises, which is crucial to economic development. Many scholars at home and abroad have studied the impact of stock liquidity on enterprise value from different perspectives. This paper finds that the stock liquidity has a significant positive impact on the value of enterprises. The higher the level of stock liquidity, the higher the enterprise value, and the company's equity structure can play a role as an intermediary variable in the process of stock liquidity affecting the enterprise value.

Free Float and Stock Liquidity: Evidence from Pakistan Stock Exchange

Liquidity has become increasingly important in the stock market, highlighting its vital role in enabling high-volume trading with minimal price distortion, speed, and convenience. This study is carried out to examine the relationship between free float and stock market liquidity using different ratios and models namely, Amihud, Amivest and turnover. For this purpose, a sample of top 100 listed companies are selected from Pakistan Stock exchange (PSX) from 2013 to 2022. An inverse relationship between free float and liquidity was found using Amihud ratio whereas turnover ratio supports the notion of improved liquidity with increased free float. This study highlights the importance of free float in capital markets and offers practical advice for businesses and individuals navigating the complexities of stock liquidity. While our paper contributes to the current body of literature, it also invites additional investigation by bringing in a variety of variables and broadening the focus outside of Pakistan's KSE 100 index companies.

The Determinants of Stock Market Development in Nepal

This research investigates the determinants of stock market development in Nepal from 2003 to 2022 using a quantitative approach. Utilizing time series data, the study employs Pearson correlation and Ordinary Least Square (OLS) methods to analyze the relationship between macroeconomic variables, including income level, banking sector development, gross domestic savings, macroeconomic stability, private capital flows and stock market liquidity and stock market development, specifically market capitalization. The results indicate that banking sector development and private capital flows significantly influence stock market development, suggesting a crucial role for financial institutions and foreign investment in shaping and fostering the growth of Nepal's stock market. However, no significant relationship has been found between income level, gross domestic savings, macroeconomic stability, stock market liquidity, and stock market development. These findings help to design policies to stabilize or stimulate the stock market in Nepal.

Examining the long-run relationship between stock market development and Nigerian economic growth

Purpose This paper aims to examine the long-run relationship between stock market development and Nigerian economic growth from 1980 to 2020. Design/methodology/approach Market capitalization, number of listed companies, total value traded ratio and turnover ratio are used. An autoregressive distributed lag model is used for the analysis. Findings The market capitalization ratio and turnover ratio have positively significant links with economic growth. The number of listed companies has a negative and non-significant impact on economic growth. Total value traded ratio has a negatively significant link with economic growth in the short run. The positive but insignificant relationship between traded value ratio and turnover ratio in the long run growth means that the Nigerian stock market is growth inducing and on the right track as stock market liquidity drives growth. Research limitations/implications The government and Security Exchange Commission should increase the market liquidity level by improving the trading infrastructure. The government and regulatory authorities should improve and effectively implement the existing policies that would ensure stock market growth. This facilitates the investors’ speed to purchase and sell shares. The Securities and Exchange Commission should reduce transaction costs to encourage active trading activities. The market should be diversified with investment instruments such as derivatives, futures and swap options which would limit the adverse effect of listed companies in the market. To increase the stock market liquidity, the Security and Exchange Commission should apply moral suasion to bring private companies that have met certain financial thresholds to convert to public companies. Government should improve on the legislation to encourage more private companies to list on the stock exchange. Originality/value The study findings add value in that stock market development has a positive impact on economic growth in Nigeria.

Does Optimistic Investor Sentiment Accelerate Taiwan Stock Market Liquidity?

Does Optimistic Investor Sentiment Accelerate Taiwan Stock Market Liquidity?

The influence of economic policy uncertainty on stock market liquidity? The mediating role of investor sentiment

PurposeThe study examines the relationship between Economic Policy Uncertainty (EPU) and stock liquidity, and the mediating role of investor sentiment.Design/methodology/approachThis study draws on a sample of 4,620 firm-year observations covering nonfinancial firms in the United States from 2007 to 2020. We employ multiple regression analysis with panel data and path analysis with Structural Equation Modeling (SEM) to examine the impact of EPU on stock liquidity in detail.FindingsEPU significantly enhances stock liquidity. However, at elevated levels of EPU, this relationship reverses. The path analysis results indicate that EPU positively affects stock liquidity via the investor sentiment channel. This sentiment partially mediates the relationship between EPU and both trading volume and turnover rate, and fully mediates the relationship between EPU and both turnover price impact and illiquidity.Practical implicationsOur findings underscore the importance of liquidity for investors, who may require higher returns for holding more illiquid stocks. Second, they can help the government understand the implications of changes in EPU, highlighting the need for clear communication and the implementation of appropriate capital market policies.Originality/valueWhile considerable research focuses on the relationship between EPU and stock market liquidity, the analysis of the channels through which EPU influences stock market liquidity remains largely unexplored. Our study highlights the importance of investor sentiment in explaining this relationship.

Stock Market Liquidity and Stock Market Performance in Nigeria: Evidence from the Nigerian Exchange Limited

Insufficient liquidity can become a significant obstacle to stock trading and impede the smooth operation and performance of the stock market. This motivated the study to investigate the effect of stock market liquidity on stock market performance in Nigeria. The research design employed was ex post facto, while stratified sampling technique was used to select top 30 actively traded and most liquid companies tagged NGX-30 for this study. Data were sourced secondarily from SEC Statistical Bulletin, CBN Statistical Bulletin and www.investing.com. The Vector Error Correction (VEC) System Equation Regression was employed as the estimation technique. The results revealed that liquidity depth, liquidity breadth, and liquidity immediacy have significant positive effects on stock market performance as shown by ? = 0.2019, 8.5594, 3.3268; p-value = 0.0329, 0.0052, 0.0467 respectively. Also, interest rate, inflation rate and exchange rate have varied significant effects on stock market performance as shown by ? = -0.0023, -1.1738, 0.03432; p-value = 0.0634, 0.0346, 0.0778 respectively. Therefore, the study concluded that stock liquid significantly affects stock market performance. Thus, the study recommended that the Security and Exchange Commission (SEC) should implement policies that encourage the participation of more traders to increase the number of actively traded stocks; support measures that improve the depth of the market by promoting transparency and fairness; improve the infrastructure for trade execution to enhance liquidity immediacy; and develop mechanisms to promptly identify and mitigate market risks.

An information theory approach to stock market liquidity.

A novel methodology is introduced to dynamically analyze the complex scaling behavior of financial data across various investment horizons. This approach comprises two steps: (a) the application of a distribution-based method for the estimation of time-varying self-similarity matrices. These matrices consist of entries that represent the scaling parameters relating pairs of distributions of price changes constructed for different temporal scales (or investment horizons); (b) the utilization of information theory, specifically the Normalized Compression Distance, to quantify the relative complexity and ascertain the similarities between pairs of self-similarity matrices. Through this methodology, distinct patterns can be identified and they may delineate the levels and the composition of market liquidity. An application to the U.S. stock index S&P500 shows the effectiveness of the proposed methodology.

The liquidity timing ability of mutual funds

We apply the nonparametric methodology of Jiang (2003) to test the market liquidity timing skills across individual equity mutual funds in three countries (the US, UK, and China). We calculate the monthly stock market liquidity using simple averages (across stocks) as well as the asymptotic principal component analysis (APCA) method based on six stock liquidity measures. Using an across-measure of market liquidity from APCA, we find a relatively small number of funds demonstrate statistically positive liquidity timing skills at a 5% significance level for the period of 2000–2021. After controlling for lagged market liquidity information, we still find a small number of mutual funds that have conditional liquidity timing ability using the nonparametric method.

STOCK MARKET RESPONSE TO METEOROLOGICAL DISASTER RISK: FROM LIQUIDITY PERSPECTIVE

This study investigates the impact of meteorological disaster risk perception on stock liquidity of Chinese listed companies by constructing meteorological disaster risk perception indicators through the Baidu index. Empirical evidence reveals that an increase in meteorological disaster risk perception decreases investors’ risk appetite and increases investors’ loss aversion, which in turn negatively affects stock liquidity. In addition, the increase in meteorological disaster risk perception also shrinks stock trading volume by reducing investor sentiment. The negative effect of meteorological disaster risk perception on stock liquidity is more pronounced in summer and winter and for firms located in water-rich areas. The findings of this study provide empirical evidence from investors’ perspective for understanding the impact of meteorological disasters on stock market liquidity.

Is there a time-varying nexus between stock market liquidity and informational efficiency? – A cross-regional evidence

PurposeThis study aims to measure the degree of volatility comovement between stock market liquidity and informational efficiency across Asia, Europe, North-South America, Africa, and the Pacific Ocean over three decades. In particular, the authors analyze the extent of the time-varying nexus between different aspects of stock market liquidity and multifractal scaling properties of the stock return series across various regions and diversified market conditions. This study further investigates several factors altering the degree of dynamic conditional correlations (DCCs) between the efficiency and liquidity of the domestic stock markets.Design/methodology/approachThe study measures five aspects of stock market liquidity – tightness, depth, breadth, immediacy, and adjusted immediacy. The authors evaluate the multifractal scaling properties of the stock return series to measure the level of stock market efficiency across the regions and diversified market conditions. The study uses the dynamic conditional correlation-multivariate generalized autoregressive conditional heteroscedasticity framework to quantify the degree of volatility comovement between liquidity and efficiency over the period.FindingsThe study finds the presence of stronger volatility comovement between inefficiency and illiquidity due to the price impact characteristics of the stock markets irrespective of different regions and diversified market conditions. The extent of time-variation increased following the shock periods, indicating the significant role of the financial crisis in increasing the volatility comovement between inefficiency and illiquidity. The highest degree of time-varying correlation is observed in the developed stock markets of Northwestern and Northern Europe compared to the regional and emerging counterparts. On the other hand, weak DCCs are observed in the emerging stock markets of Europe.Originality/valueThe output of the present study assists investors in identifying diversification opportunities across the regions. Additionally, the study has significant implications for market regulators, aiding in predicting future troughs and peaks. The prediction, in turn, helps formulate capital market development plans during dynamic economic situations.

Board diversity, female executives and stock liquidity: evidence from opposing cycles in the USA

PurposeThis study aims to address gaps and limitations in the literature on corporate governance and stock liquidity. It explores the potential benefits of increasing female representation in corporate leadership, which has been a subject of debate and policy intervention in recent years.Design/methodology/approachBased on prior empirical studies and by integrating the insights of different theories, this study links gender diversity to stock liquidity and uses a multivariate panel regression approach.FindingsThe results show that gender diversity, both on the board and in executive positions, positively and consistently affects stock liquidity across different business cycles. The findings reinforce the notion that diverse executive leadership is crucial and influential irrespective of the prevailing economic conditions.Practical implicationsThis study has practical implications for investors, managers and policymakers who are interested in the benefits of gender diversity in corporate leadership. It suggests that increasing the percentage of female executives and board members can improve stock market liquidity, which is a key indicator of market efficiency and firm value.Social implicationsThis study advocates for gender equality and diversity in corporate leadership, which can benefit society. It demonstrates that the presence of women directors can enhance financial stability and thus benefit the stakeholders and the community.Originality/valueThis study contributes to the academic literature by examining the impact of gender diversity on board and executive levels on stock liquidity in the US market. Previous research on this topic has mainly relied on French or Australian data. Moreover, this study extends previous work through examining the case of executives’ gender diversity. To the best of the authors’ knowledge, this study is the first to analyze the relationship between gender diversity and stock liquidity across different business cycles, providing a nuanced understanding of how economic contexts affect this relationship.

The impact of investor sentiment on stock liquidity of listed companies in China

Researchers have scrutinized the link between investor sentiment and stock market liquidity globally, yet few have delved into this dynamic in emerging markets, especially China. Utilizing a sample of 1,839 publicly listed companies in China from 2010 to 2019, this study applies firm- and year-fixed-effects models to explore the nexus between investor sentiment and stock illiquidity, employing the Amihud measure for stock illiquidity assessment. The outcomes of these fixed-effect regressions illustrate a significantly positive relationship between investor sentiment and stock liquidity in the Chinese market. The positive link is more evident in scenarios characterized by high firm leverage, rapid revenue growth, larger corporations, greater institutional ownership, higher stock volatility, and lower book-to-market ratios. Intriguingly, this analysis incorporates the quadratic term of investor sentiment to examine the potential for a nonlinear dynamic between stock illiquidity and investor sentiment. The findings elucidate that the effect of investor sentiment on stock liquidity diminishes at elevated levels of sentiment, revealing a nonlinear inverse U-shaped relationship. The positive correlation between investor sentiment and stock liquidity persists across the three divisions of the Chinese Shenzhen Stock Exchange and remains robust using alternative liquidity measures, such as Roll’s impact and zeros impact. Addressing causality concerns, current investor sentiment appears to influence subsequent liquidity levels. These results provide valuable perspectives for policymakers, business executives, and investors in the stock market. Acknowledgment This research was funded by the Department of Education of Zhejiang Province General Program [Y202353438], the Wenzhou Association for Science and Technology—Service and Technology Innovation Program [jczc0254], the Wenzhou-Kean University Student Partnering with Faculty Research Program [WKUSPF2023004], and the Wenzhou-Kean University International Collaborative Research Program [ICRP2023002].

Does stock liquidity affect expropriation behavior by controlling shareholders? Evidence from China

When a firm is controlled by a large shareholder, the principal agency problem arises from expropriation by controlling shareholders of other shareholders. Using a sample of 3776 publicly traded firms in the Chinese A-share market over the period 2007–2020, this study investigates whether stock liquidity impedes or enhances the expropriation behavior of controlling shareholders. I demonstrate that (1) a liquid stock market generally encourages expropriation behavior by controlling shareholders, (2) the positive effect of stock liquidity on expropriation by controlling shareholders is mitigated when active investors hold a large stake in the firm, and (3) active investors’ monitoring of expropriation by controlling shareholders is mitigated at state-owned enterprises and firms that have a large gap between ownership and control. However, higher competition among blockholders strengthens the discipline of active investors with respect to expropriation. This study builds a new link between a market factor (stock liquidity) and a governance problem (expropriation by controlling shareholders) and reveals some new characteristics in the relationship between stock liquidity and corporate governance in an emerging market.

Impact of stock market liquidity and external factors on herding behavior in the Amman Stock Exchange

Purpose — The research investigation was centered on the potential for herding behavior in the Amman Stock Exchange. The major goal of the current investigation is to identify any herding behavior that may occur, including behavior caused by liquidity and global factor drivers (such as oil prices and Fed fund rates).Method — The study employed the quantitative research method. The sample consists of 50 observations from 171 companies, and the data were collected from monthly records spanning January 2019 to March 2023. The Generalized Method of Moments (GMM) and a deductive approach were utilized in the quantitative methodology of this study.Result — At this stage, employing a CSSD regression analysis makes it possible to observe evidence of herding behavior in the left tail. The study also found no evidence suggesting that stock market liquidity affects herding behavior in the right tail during periods of both high and low liquidity. However, it did find evidence indicating that liquidity affects herding behavior in the left tail. The Amman capital market has demonstrated that herding behavior is not significantly influenced by global factors.Practical implications — This study suggests that the Amman Stock Exchange should make information accessible to all investors to encourage them to take an active role in making their own investment decisions.

New Weighted Burr XII Distribution: Statistical Properties, Applications, and Regression

In this study, a three-parameter modification of the Burr XII distribution has been developed through the integration of the weighted version of the alpha power transformation family of distributions. This newly introduced model, termed the modified alpha power-transformed Burr XII distribution, exhibits the unique ability to effectively model decreasing, right-skewed, or unimodal densities. The paper systematically elucidates various statistical properties of the proposed distribution. The estimation of parameters was obtained using maximum likelihood estimation. The estimator has been evaluated for consistency through simulation studies. To gauge the practical applicability of the proposed distribution, two distinct datasets have been employed. Comparative analyses involving six alternative distributions unequivocally demonstrate that the modified alpha power-transformed Burr XII distribution provides a better fit. Additionally, a noteworthy extension is introduced in the form of a location-scale regression model known as the log-modified alpha power-transformed Burr XII model. This model is subsequently applied to a dataset related to stock market liquidity. The findings underscore the enhanced fitting capabilities of the proposed model in comparison to existing distributions, providing valuable insights for applications in financial modelling and analysis.

The effect of corporate Twitter, Instagram and YouTube activity on investor attention and market liquidity

AbstractUsing daily‐level data on corporate social media activity, we show that investor attention generally increases when firms post on Twitter, Instagram and YouTube and that the effect is stronger during earnings announcement periods. We find that stock market liquidity improves when firms post on social media, but the effects are the most consistent for Twitter. Finally, we document that when firms miss earnings, they post more on social media if the magnitude of the bad news is small but remain silent when the magnitude is large. This strategic behaviour is prevalent across all three social media platforms.

Brexit's ripple: Probing the impact on stock market liquidity

This paper examines the Brexit announcement's impact on market liquidity, highlighting its significant effect on UK and EU stocks listed on the NYSE. Regression results indicate that Brexit amplified uncertainty, leading to reduced liquidity, with UK stocks taking two days to recover compared to one day for EU stocks. This indicates greater investor uncertainty for UK stocks. Additionally, our study reveals that Brexit's impact extends globally, affecting US and non-US stocks, with US stocks being susceptible to close UK ties. These findings underscore Brexit's extensive influence on international financial markets.

The resurrected size effect still sleeps in the (monetary) winter

In this paper, we provide evidence that the size premium (SMB) is more significantly related to monetary policy than to firm quality or to business cycle troughs. Across both economic expansion and contraction periods, whether we control for firm quality or not, we show that monetary tightening eliminates the size premium and easing of policy re-instates it. We further demonstrate that the effect holds even outside of business cycle troughs as found by Ahn et al. (2019). The channels through which monetary policy affects small firms differently than large firms are identified, such as a stock market liquidity effect, a firm-level liquidity effect and increased access to credit. Our findings indicate that monetary policy is an important factor to consider when assessing the size premium, and apparently more important than firm quality, and the business cycle.

Causality between Economic Policy Uncertainty, Economic Growth and Stock Liquidity: Evidence from ASEAN markets

Abstract This research investigates the causal relationships among economic policy uncertainty, economic growth, and stock market liquidity in ASEAN markets, focusing on the extent and directionality of these relationships. Using Granger causality tests on data from six ASEAN countries, the study assesses the impact of economic policy uncertainty on economic growth and stock market liquidity using price-range and volume-based measures. The findings reveal no significant causal effect of economic policy uncertainty on economic growth or stock market liquidity but identify significant causal effects of economic growth on stock market liquidity for price-range measures and of stock market liquidity on economic policy uncertainty. This underscores the complex interplay within emerging markets and suggests resilience against policy uncertainty. Recommendations emphasize the need for investors and policymakers to consider broader economic indicators and market-specific liquidity measures when evaluating the impact of economic policy uncertainty, advocating for diversified strategies and policies to stabilize economic growth to enhance market liquidity indirectly.