Stock Market Liquidity Research Articles

Impacts on REIT Stock Capital Structures, Equity Costs, and Market Liquidities of Being Included in ETF Managed Portfolios

In recent years, especially as compared to mutual funds, exchange traded fund (ETF) markets have grown and advanced significantly compared to other financial asset classes because of relative advantages. We found that inclusion of real estate investment trusts (REITs) in ETF assets under management (AUM) positively impacts REIT capital structure (financial leverage), cost of equity capital, and stock market liquidity. As percentages of REIT outstanding shares included in ETF AUM increased, we found corresponding reductions in financial leverage (both book and market leverage), reduced costs of equity capital, and greater market liquidity. This should be of particular interest to REIT and ETF managers as well as REIT and ETF investors. Partially because regulatory statutes incentivize REITs to rely more heavily on external equity financing, REIT stocks included as ETF AUM showed greater reductions in leverage compared to non-REIT stocks also held as ETF AUM. Our results, including applying difference-in-differences models, were robust with respect to these findings, REIT type, and firm fixed effects.

COVID-19, various government interventions and stock market performance

PurposeAccording to the Government Response tracker (oxCGRT) index, the overall government response, stringency, economic support, containment and health policies to COVID-19 from January 2020 to December 2022. The main objective of this paper is to explore how stock market performance is affected by these polices, respectively.Design/methodology/approachThe authors employ EGARCH and autoregressive distributional lag (ARDL) models to test the impact of epidemic prevention policy implementation on stock market returns, volatility and liquidity and make cross-country comparisons for six important world economies.FindingsFirstly, the implementation of various preventive policies hurts stock market returns and increases volatility, but there are a few indicators that have no effect or have an easing effect in some countries. Secondly, health policies exacerbate market volatility and have a stronger effect than other policy indicators. Thirdly, In China and the USA, anti-epidemic policies have been shown to worsen liquidity, while in Japan they have been shown to improve liquidity.Originality/valueFirst, enrich the growing body of COVID-19 research by comprehensively examining whether and how government prevention policies affect stock market returns, volatility and liquidity. Second, explore the impact of different types of intervention policies on stock market performance, separately.

Corporate ESG rating and stock market liquidity: Evidence from China

This paper investigates the impact of corporate environmental, social, and governance (ESG) rating on a firm's stock market performance. Using Chinese publicly listed companies from 2010 to 2020, we find that ESG rating significantly improves stock liquidity; a series of robustness tests further verify this result. We also find that this effect is more pronounced in firms with less political connection, weaker corporate governance, and less transparent information environment. Furthermore, investor attention mediates the relationship between ESG rating and stock liquidity. Our results provide significant implications for the importance of ESG rating in deterring information asymmetry and promoting corporate governance in markets with many retail investors and relatively weak investor protection.

The influence of information asymmetry on the interaction between voluntary corporate disclosure and cost of equity: evidence from publicly traded Indian enterprises

PurposeThe purpose of this paper is to investigate whether information asymmetry mediates the relationship between disclosure and cost of equity.Design/methodology/approachThe study is based on a sample of 500 companies listed in Bombay Stock Exchange for a period of six years from 2015 to 2021. Panel data regression is applied to analyze the relationship between voluntary disclosure, cost of equity and information asymmetry. Mediation effect of information asymmetry is tested with the help of Barron and Kenny’s (1986) approach.FindingsFindings suggest that in case of Indian companies, disclosure reduces cost of equity directly and indirectly through mediation of information asymmetry. Indian investors value credible information for better estimation of future returns, supporting the validity of estimation risk and stock market liquidity hypothesis, which proposes an inverse relationship between disclosure and cost of equity.Research limitations/implicationsManagers can use the findings to strategize their disclosure policy and secure funds at lower cost. Shareholders can monitor managerial actions by demanding credible disclosures. Government too can encourage voluntary disclosure by providing special incentives to the firms.Originality/valueThis study is a pioneering research that investigates the mediating influence of information asymmetry between disclosure and cost of equity with reference to the Indian corporate landscape.

Does COVID-19-specific news affect stock market liquidity? Evidence from Japan

This article examines the effect of COVID-19-specific news on stock market liquidity in the Japanese Topix 500-listed firms. Our empirical analyses show that both COVID-19 confirmed cases and COVID-19-specific news induce a negative effect on stock market liquidity. These findings suggest that the effect of COVID-19-specific news on U.S. stock market liquidity [1] is robustly confirmed in Japanese firms. This study also presents recommendations derived from Narayan et al. [2], who constructed a COVID-19-specific news index using data from popular newspapers worldwide. In sum, this study presents the following:•Stock market liquidity is negatively affected by confirmed cases of COVID-19 in Japan.•The impact of COVID-19-specific news on stock market liquidity was analyzed using the OLS regression method.

INDONESIA’S STOCK MARKET LIQUIDITY: THE IMPACT OF COVID-19 PANDEMIC AND SOCIAL DISTANCING

The purpose of this study was to obtain empirical evidence regarding the effects of COVID-19 pandemic on Indonesia’s Stock Market Liquidity. COVID-19 was observed with three variables (the growth of the total number of confirmed cases, the growth of the number of deaths, and stringency index). This study incorporated market capital, return of Jakarta Composite Index (JCI), and exchange rates of Rupiah against U.S. Dollar as control variables. The source of data of this research was from IHSG transactions, COVID-19 updates on WHO’s website, and exchanges rate historical data from Bank Indonesia’s website from March 2nd, 2020 to December 30th, 2020. Hypothesis testing is done by multiple regression analysis using EViews 12. The findings of this research indicate that COVID-19 did not correlate significantly to the liquidity by the depth measure. The implication of this study is to provide new insight regarding the effects of pandemic towards Indonesia’s stock market liquidity, to become a reference to the future research because the result differs from one country to another one, to provide new insight such as knowledge regarding the higher return and the strengthening of Rupiah means the higher stock market illiquidity by its depth, in order to give guidance for investors’ decision-making process and to give references for the next research.

Stock market development and capital formation in selected African economies

PurposeThis study aims to explore the possibility that securities markets in selected African countries of Egypt, Kenya, Nigeria and South Africa play a significant role in capital accumulation using panel data analysis. This is done by exploring the relationship between gross fixed capital formation on the one hand and financial market development indicators on the other hand. Thus, the study aims to examine if stock market size and liquidity are determinants of capital accumulation.Design/methodology/approachThe analysis is based on annual times series from 1991 through 2017 spanning four African stock markets. The analysis utilizes the fixed-effect and random-effect econometric models. The Durbin–Wu–Hausman test is used to choose between the two models.FindingsThe key results indicate that stock market capitalization is a positive determinant of gross fixed capital formation. The market value traded and turnover have no relationship with capital formation. Therefore, the role of stock African stock markets in promoting capital accumulation and, subsequently, industrial growth in Africa is seriously questioned.Originality/valueOnly a handful of studies have examined the role of the African securities market in promoting capital accumulation. This study is unique in which it focuses on the leading stock markets in the four corners of Africa. The markets are from Egypt in the north, South Africa from the south, Nigeria from the west and Kenya from the east. These four markets account for a significant segment of all African markets.

Determinants of IPO stock market liquidity in a small emerging economy

Determinants of IPO stock market liquidity in a small emerging economy

The impact of COVID-19 on stock market liquidity: Fresh evidence on listed Chinese firms

This paper examines the impact of the COVID-19 pandemic on the liquidity of Chinese stock market, while accounting for heterogeneity and transmission channels. The analysis incorporates important innovations relative to previous literature. It incorporates both global and national COVID-19 proxies to measure the severity of the pandemic, providing fresh insights into its disruptive effect on the Chinese stock market. While all businesses are expected to experience significant economic losses due to the pandemic, it is important to recognise the effects can vary across firms. Our study as indicates that COVID-19 shocks can have a negative impact on liquidity by influencing three critical factors: earnings dispersion, equity risk premia, and trade credit restrictions. These findings hold substantial importance for both governments and regulators, who should take actions to stimulate stock market liquidity and provide support to affected firms.

COVID lockdown, Robinhood traders, and liquidity in stock and option markets

In this study, I investigate the impact of active option trading on stock market liquidity during the COVID-19 lockdown, particularly in connection with the rapidly growing retail trading activities during this period. I find that stocks with actively traded options, as well as those held by more Robinhood users, experience a lesser deterioration in liquidity during the US COVID-19 lockdown. However, a broader Robinhood user base appears to diminish the alleviation effect of actively traded options on the underlying stock's liquidity decline during the lockdown period. This observation is consistent with the postulation that informed traders shift away from option markets and towards stocks where the stock liquidity is improved. Further analysis suggests that, during the lockdown, a more extensive retail presence in the stock market is also associated with a narrower bid-ask spread in the option market. This finding supports the previous theories and empirical evidence suggesting that option market makers may offer tighter spreads when their hedging costs in the underlying market are reduced. Overall, this study presents novel evidence on the joint dynamics across stocks and options during the COVID-19 episode, and highlights the significant roles played by Robinhood traders in these dynamics.

Drivers of Stock Market Development in Nigeria: Does Openness Matter?

The stock market represents a major source of long-term funds. However, the Nigerian stock market lacks depth due to the weak regulatory system and legal framework. Extant studies have shown that both institutional quality and openness are enablers of the stock market. An analysis of the effects of institutional quality and openness on the development of the Nigerian stock market from 1996 to 2021 is therefore crucial. The Auto Regressive Distributive Lag (ARDL) method is used to analyze data from World Bank databases and the Lane-Milesi Ferreti index, with results showing that institutional quality has a positive and significant impact on stock market development in Nigeria. Meanwhile, development of the stock market, institutional quality, and openness are related over the long term based on the ARDL bounds test. A further finding revealed that the development of Nigeria’s banking sector and the exchange rate had positive (negative) effects on the development of the stock market, respectively. Additionally, stock market liquidity contributed to development of the market. This study came to the conclusion that an enabling stock market in Nigeria could be strengthened by the interaction of institutional quality and openness. The study concludes that strengthening Nigeria’s governance institutions through the creation of an appropriate legal framework is necessary to ensure political stability and the absence of violence in the country’s political system. Besides, the government really needs to grant autonomy to agencies in charge of tackling corruption to enable them to enjoy simultaneous openness. Monetary authorities should also ensure exchange rate stability and improved credit for domestic investment activities.

Determinant of Capital Adequacy Ratio (CAR) in Indonesia

This study aims to examine and analyze the effect of the Bond Index, Stock Market Liquidity, NIM, LDR, NPL, Bank Inefficiency, Previous CAR, Economic Growth, Fed Fund Rate, and Oil Price on Capital Adequacy Ratio. The sample used in this research is conventional banks listed on the Indonesia Stock Exchange for the period 2010 – 2020, which totals 23 banks. The independent variables in this study are Bond Index, Stock Market Liquidity, NIM, LDR, NPL, Bank Inefficiency, Previous CAR, Economic Growth, Fed Fund Rate, Oil Price, and the dependent variable Capital Adequacy Ratio. The sampling method is the census. The data analysis method uses the panel data regression method which examines and analyzes the influence of the independent variables Bond Index, Stock Market Liquidity, NIM, LDR, NPL, Bank Inefficiency, Previous CAR, Economic Growth, Fed Fund Rate, and Oil Price on the dependent variable Capital Adequacy Ratio. Bank Inefficiency, Bank Risk, and GDP Growth have a negative and significant effect on Capital Adequacy Ratio (CAR). Previous CAR, Fed Fund Rates, and Oil Prices have a positive effect on CAR. Bond Index, Loan Deposit Ratio (LDR), and Non-Performing Loans (NPL) do not affect the Capital Adequacy Ratio (CAR). Banks can increase CAR when the Fed Rate and Oil Price decrease. Banking can increase CAR when Bank Inefficiency, Bank Risk, and GDP Growth decrease.

Competitive strategy and stock market liquidity: a natural language processing approach

Competitive strategy and stock market liquidity: a natural language processing approach

FINANCIAL INCLUSION IMPLICATIONS ON THE LIQUIDITY OF THE NIGERIAN CAPITAL MARKET

The objective of this study was to examine the implications of financial inclusion on capital market liquidity in Nigeria. Therefore, we applied Vector Autoregression (VAR) technique to the analysis of the quarterly time series data obtained from Central Bank of Nigeria’s statistical bulletin and World Development Indicators for the period, 2008Q1 to 2018Q4. Findings of this study reveal that deposit penetration, bank penetration and credit penetration have positive but non-significant impact on stock market turnover ratio in Nigeria. Furthermore, unlike deposit penetration which exerts negative and non-significant influence on the value of shares traded ratio; bank penetration and credit penetration have positive but non-significant impact on the value of shares traded ratio in Nigeria. The study posits that financial inclusion exerts no significant influence/implications on stock market liquidity in Nigeria with a very negligible variation in the latter (stock market liquidity) explained by the former (financial inclusion). It is therefore recommended that accounts and bank penetrations should be re-engineered towards their translations to high volume and value of capital market transactions rather than mere financial penetration without any capital market implications in Nigeria.

Analisis Faktor-Faktor yang Mempengaruhi Likuiditas Pasar Saham

The objective of this study is to obtain valid evidence regarding the individual effects of the variables Firm Value, earnings management, and stock risk on stock market liquidity. Stock Liquidity, Earning Management, Firm Value, and Stock Risk are measured respectively by Total Volume Activity, discretionary accrual model modified Jones, PBV, and Beta. Research in the form of causality. Samples were selected using a purposive technique. The data is extracted from the company's annual financial reports accessed from official sources. The samples were 16 companies from the infrastructure sub-sector manufacturing group listed on the IDX during the 2017-2021 period, so that 80 observation data were obtained. Multiple regression is used for data analysis, where the tests include multicollinearity tests, partial-t tests and coefficient of determination tests. The findings of this study show that Earning Management, Firm Value, and Stock Risk affect Stock Market Liquidity

The mediating role of stock market liquidity on the relationship between Investor sentiment and Stock market volatility: An Applied study on Listed Companies in Egyptian stock Exchange

The mediating role of stock market liquidity on the relationship between Investor sentiment and Stock market volatility: An Applied study on Listed Companies in Egyptian stock Exchange

Customer concentration and stock liquidity

This research empirically examines how customer concentration affects stock market liquidity of supplier firms. We find that firms with a concentrated customer base are strongly and positively associated with stock market liquidity, which is robust to a battery of model specifications and endogeneity issues. The positive relationship between customer concentration and liquidity is concentrated among firms with relatively small size, high financial constraints, and high information asymmetry. Further analyses provide supportive evidence on the monitoring role of principal customers in improving firms’ stock liquidity. Overall, these findings suggest that relationships with principal customers serve as valuable signals for the underlying quality of firms, and thus firms in such relationships are able to achieve favorable economic outcomes.

Assessment of Stock Market Liquidity and Efficiency: Evidence from an Emerging Country

The study examines the market efficiency, multi-dimensions of liquidity, and their interconnectedness for the Emerging Indian Stock Market. In contrast to the extant literature, the current study involves testing the market liquidity considering multi-dimensions such as depth, breadth, immediacy, tightness, and resiliency. Second, the study used a battery of tests to determine efficiency, including the Ljung and Box, runs test, Bartel test, Variance ratio, and BDS tests. Furthermore, using five quintiles classified by market depth, the linkage of market efficiency and liquidity is also being investigated. The findings show that during the pandemic, the Indian stock market has been proven to be efficient, suggesting that there are no abnormal returns. Moreover, the research demonstrates that during the COVID-19 pandemic, large volumes of securities are traded quickly and at a lower price effect, but with higher trading costs for completing a market transaction. However, it is worth noting that increased liquidity equates to greater efficiency, while lower liquidity equates to inefficiency.

Price bands and their effects on equity markets: Evidence from a natural experiment

We exploit a unique experiment, where the intraday price moves of Indian IPO listings are restricted within a narrow band, to examine the consequences of price bands for stock prices, investor trading behavior, and stock market liquidity. Based on difference-in-differences estimations, we find that price bands lead to a significant reduction in the price variability of IPO stocks. The decrease in variability is accompanied by increases in post-IPO selling by individual investors, the price impact of trades, and IPO expected returns. Bid-ask spreads remain similar. The findings provide new evidence on the effects of intraday price bands on equity markets.

The Impact of the Stock Market on Liquidity and Economic Growth: Evidence of Volatile Market

Stock markets serve as a conduit for money and liquidity, which are necessary for economic growth and stability. This study aimed to determine whether stock market impacts are communicated in an economically unstable environment, characterised by volatility, high inflation rates, and political instability. The research used a time series Vector Autoregressive model (VAR) with quarterly data from between 2013 and 2022. The study revealed that there is a positive statistically significant association between the stock market and economic growth at the 10% level. On the other hand, the stock market liquidity has no major influence on Zimbabwe’s economic development. As a result, the study advises policymakers to evaluate the rules regulating the stock market carefully and to relax some of the requirements for firms to be listed on the stock exchange. The stock market will become more liquid as a result of this because it will draw more internal and external businesses to being listed. The ZSE should also develop a framework for the gradual implementation of the commodity derivatives exchange as Zimbabwe’s substantial mineral reserves and robust agriculture may bring significant income to the country’s economy.