Stock Liquidity Research Articles

Stock liquidity during COVID-19 crisis: A cross-country analysis of developed and emerging economies, and economic policy uncertainty

We investigate the impact of the COVID-19 on firms' stock liquidity across six developed and emerging economies. Unlike prior literature, we further compare the effects of the pandemic between developed and emerging economies, high and low economic policy uncertainty (EPU), and large and small firms. Our results document the significant negative impact of infection cases and deaths on firms' stock liquidity across the sample countries, and the similar effect of their interaction term. We find that the impact is more pronounced in the developed economies, high EPU and small firms, compared to emerging economies, low EPU and large firms, respectively.

Capital Market Reactions to The Covid 19 Pandemic

This study aims to determine and analyze the capital market's reaction to the Covid 19 Pandemic in biotechnology companies listed on the Nasdaq. The method used in this study uses a type of quantitative method. This study uses an event study. The sampling method in this study was carried out using a non-probability random sampling approach. The announcement of the COVID-19 pandemic by the WHO and the commitment to produce a COVID-19 vaccine have had a significant impact on abnormal stock returns and trading volume activities of biotech companies listed on the NASDAQ stock market. However, there is no significant effect on the liquidity of biotech company stocks. In addition, the announcement of the COVID-19 pandemic also affected the volatility of biotech company stocks. In contrast, the announcement of a commitment to producing a COVID-19 vaccine did not significantly impact the volatility of biotech company stocks. So, it shows that the NASDAQ stock market reacts sensitively to announcements about the COVID-19 pandemic and efforts to produce COVID-19 vaccines by biotech companies. This shows that the COVID-19 pandemic has significantly impacted the stock market, especially in the biotechnology sector. The event study approach is used to test the market with a semi-strong form of market efficiency by demonstrating that the stock price reflects all published information (all publicly available information).

Does ESG performance promote vitality of capital market? Analysis from the perspective of stock liquidity

Environmental, Social, and Governance (ESG) is changing from a concept to corporate soft power. Can this improve corporate performance in capital markets? There is little literature linking environmental, Social, and Governance performance to stock liquidity. Therefore, It is of urgent theoretical and practical importance to study the impact of environmental, Social, and Governance performance on stock liquidity. Using Chinese A-share listed companies from 2015 to 2020 as a sample to empirically examine the impact of environmental, Social, and Governance performance on stock liquidity and its mechanism. We find that environmental, Social, and Governance performance has a significant positive impact on listed companie’s stock liquidity. This conclusion was validated after conducting a series of robustness tests. Mechanism analysis shows that environmental, Social, and Governance performance can promote stock liquidity by reducing agency costs, increasing the proportion of foreign ownership, and improving corporate reputation. The heterogeneity analysis shows that environmental, Social, and Governance performance in state-owned enterprises, heavily polluting enterprises, and enterprises in areas with low degrees of marketisation has a more significant positive promoting effect on stock liquidity. This study expands the research on environmental, Social, and Governance performance and has implications for promoting the development of environmental, Social, and Governance practices.

ETF ownership and informational efficiency of underlying stocks: Evidence from China

This study investigates how exchange-traded fund (ETF) activity affects the informational efficiency of its underlying stocks in the Chinese market, which has several different features from developed markets. We show that increased ETF ownership improves stock liquidity and attracts informed investors, resulting in higher pricing efficiency. By exploiting the heterogeneity of four different types of ETFs in the Chinese market, we show that the informational role of ETFs depends on whether they can be used for intraday trading, which significantly improves underlying securities' liquidity. Our study adds to the ongoing debate on the economic consequences of financial innovations and sheds light on the informational role of ETFs for emerging markets.

News Sentiment, News Intensity, and Price Movement of Indonesia's 45 Most Liquid Stock Index

This study analyzed the sentiment of the constituent news of the LQ45 index on its index movement by considering the news intensity. Two Sentiment analysis methods are used in this study. The Loughran and McDonald's dictionary as a measure of financial sentiment, then TextBlob sentiment analysis as a measure of general sentiment. We found that news intensity decreased during the financial crisis. Interestingly, news intensity increased significantly after the Covid-19 crisis. Then the constituent news sentiment has a relatively strong correlation with the index movement. Through linear regression analysis, the evidence suggests that the effect of sentiment on index returns is more significant when news intensity increases. Derived from these findings, we concluded that news sentiment is one of the unignorably price-forming factors in further analysis.

Can Short Selling Improve the Quality of Information Disclosure in Clarification Announcements by Firms Faced with Market Rumors?

ABSTRACT Using a sample of clarification announcements by Chinese listed companies and a difference-in-differences approach, this paper discusses the impact of short selling on corporate clarifications. The results show that short selling pressure disciplines managers’ clarification behaviors. Pilot firms are more likely than non-pilot firms to release timely, detailed, and technical clarification announcements, indicating that the ex-ante pressure of short selling improves the quality of information disclosure in clarifications. The results are robust to the use of a propensity score matching sample, the exclusion of extraordinary sample periods, controlling for the category of rumors, and the adoption of the double selection approach. The disciplinary effect of short selling on the quality of information disclosure in clarifications is more significant for companies with higher CEO equity-based incentive ratios, higher stock liquidity, and higher media coverage than for other companies. More intensive short selling activities, implying an increased ex-post threat of short selling, also lead to improvement in the disclosure of clarifications. Additional research shows that the improved disclosure increases stock price informativeness, and short selling enhances this effect.

Reverse stock splits effects on the liquidity of European stocks

Purpose: It is common that firms listed at undesirably low prices perform reverse stock splits to increase prices while decreasing the number of shares outstanding. In addition to these impacts, it is important to understand whether this operation has any side effects on the liquidity, as this is a fundamental element for the proper functioning of the financial markets. Therefore, our main goal is to analyze the effect that reverse stock splits have on the liquidity of European stocks. Methodology: To analyze the effect on the liquidity of the 30 firms, members of the STOXX Europe 600 index, which performed the 35 reverse stock splits identified between January 1, 2015, and December 31, 2019, we use the event study methodology and parametric and non-parametric tests. The analysis is done with a short-term (1 month) and a medium-term (6 months) event windows and to measure liquidity we use the turnover ratio and Liu’s (2006) LMx measure. Findings: In the short-term analysis, reverse stock splits contribute to increasing firms’ stock liquidity. In the medium-term analysis, it is not possible to draw a clear conclusion on the effects of reverse stock split on stock liquidity. Practical implications: The results have important implications for investors wishing to acquire shares in firms on the verge of executing this operation, as it clarifies the behavior of liquidity after the reverse stock split, which may influence their investment decision. They also contribute to helping the boards of directors of listed firms in the decision-making process. Originality/value: This work contributes to the financial literature on the relationship between reverse stock splits and liquidity, and to a better knowledge of European markets. Keywords: reverse stock splits, liquidity, Europe.

Exogenous Loss of Analyst Coverage and Choice of Audit Quality

SYNOPSISWe show that a firm’s likelihood of appointing auditors with industry expertise or with a larger office increases after the firm is affected by an exogenous reduction in analyst coverage, relative to its matched control firms. This effect is stronger for affected firms with greater reductions in analyst monitoring, for smaller or younger firms, for firms with lower institutional or CEO ownership, and when the lost analysts are more effective monitors. We further show that affected firms that switch to high-quality auditors receive more positive market reaction, experience a smaller decrease in stock liquidity and a smaller increase in cost of equity capital relative to other affected firms, suggesting that audit quality has real payoffs. These results collectively provide causal evidence supporting the agency incentive driven demand for high-quality external auditing.

The impact of bank loan announcements on stock liquidity

We examine the impact of bank loan announcements on stock liquidity. Using a comprehensive loan announcement sample over 14 years in Australia, we find that effective spreads and realised spreads of borrowers' stocks fall after the announcements. The findings suggest these announcements send positive signals about borrowers to the market that increases liquidity provision, and reduce transaction costs, leading to improved liquidity for borrowers’ stocks. This liquidity improvement is more pronounced following announcements of new loans than loan renewals. Overall, our findings provide practical implications for firm managers in the financing decision-making process and market participants in trading strategy adjustment.

Geopolitical risk and stock liquidity

In this paper, we examine the relationship between geopolitical risk and stock liquidity. Using an international sample of publicly listed firms, we find that higher geopolitical risk is associated with lower stock liquidity, and this is mainly driven by the expectations and threats of geopolitical tensions, rather than their effective realization and escalation. Also, we observe the largest decrease in stock liquidity in correspondence of stocks traded in less liquid markets and whose preexisting liquidity was already low, as well as stocks whose issuers are more financially constrained and less transparent. Our results shed light on the stock market implications of geopolitical risk and show that financing constraints and information asymmetry are two relevant features in explaining these implications.

Impacts of environmental sustainable performance reporting on the stock price crash risk and stock liquidity: The mediating role of predictability and comparability

AbstractNowadays, sustainability performance reporting plays an important role in corporates’ success. Since sustainability reporting improves the quality of disclosure and financial transparency, it is expected to have positive effects on stock prices and liquidity and reduce the crash and liquidity risk. This research investigates the impacts of environmentally sustainable performance reporting on the stock price crash and liquidity risks and the mediating role of earnings predictability and comparability using structural modeling equations. Using the systematic elimination sampling method, 147 companies listed on the Tehran Stock Exchange were selected. The studied period was from 2011 to 2020 and PLS software was used for data analysis. The results show that environmental sustainability performance reporting enhances earnings comparability and mitigates the crash and liquidity risks. The findings also show that comparability has a mediating impact on the relationship between environmentally sustainable performance reporting with the crash and liquidity risk. Although the accuracy of forecasted earnings significantly reduces the crash and liquidity risks, however, we find no evidence for its mediating impact on the relationship between environmentally sustainable performance reporting with crash and liquidity risks.

Assets Value Added and Assets Liquidity on Stock Liquidity

The purpose of this study is to determine the impact of assets value added and assets liquidity to stock liquidity in the context and evidence in Indonesia and in relatively different situations and conditions. The novelty of this research is in the assets value added using net value-added measurements, the research was conducted in the context and evidence in Indonesia, this research was conducted in two different situations, namely 2018-2019 (before the corona virus occurred) and 2020 (the corona virus occurred). The contribution of this research fills the narrow research gap in the field of stock liquidity from the perspective of assets value added in the context and evidence in Indonesia. The population in this research are entities listed on the Indonesia Stock Exchange with a research sample of entities categorized as manufacturing entities, research year 2018-2020, data analysis methods in this research used multiple regression, moderate regression (MRA). Main Findings: (i) Assets Value Added, Assets Liquidity and Information Asymmetry simultaneously effect Stock Liquidity. (ii) Stock Liquidity is positively impacted by Assets Value Added. (iii) Stock Liquidity is negatively impacted by Assets Liquidity. (iv) Information asymmetry weakens the impact of Assets Value Added to Stock Liquidity. (v) Information asymmetry strengthens the impact of Assets Liquidity to Stock Liquidity. The results of this study provide evidence in favor of information asymmetry theory and signal theory.

How digital technology improves the high-quality development of enterprises and capital markets: A liquidity perspective

This paper finds that the digitalization has a positive impact on stock liquidity, especially those lack analyst follow-up or low online media attention. We use “Made in China 2025” as an exogenous shock to conduct difference-in-differences estimation to improve causality. We discuss a possible mechanism based on classical information asymmetry theory. Our results are robust to a battery of tests based on different specifications and alternative measures. Overall, this research evaluates the significance of digital transformation for enterprises and has implications for enhancing capital market liquidity.

The Comparison and Analysis of Exchange Traded Funds (ETFs) Return Rates

Abstract Based on the trading data of A-share listed companies held by ETFs and the shareholding data of exchange-traded funds during 2011-2022 in China stocks markets, this paper uses the dynamic panel differential GMM model to study the shareholding ratio of exchange-traded funds and the impact of its changes on the liquidity of the underlying stocks. First, all the samples were regression and empirical results were analyzed. Then, the main board of Shanghai and Shenzhen, small and medium-sized board and growth enterprise board stocks were respectively regression to draw conclusions, and the robustness of the above research was tested. In the end, two main conclusions are drawn from the above research: (1) There is a significant positive correlation between the shareholding ratio of ETFs and stock liquidity, that is, the higher the shareholding ratio of ETFs, the higher stock liquidity. (2) The positive change of ETFs shareholding ratio will significantly increase the liquidity of the underlying listed companies' stocks. JEL classification numbers: G11. Keywords: Exchange-traded fund, Rate of return, Research and analysis.

Readability of Annual Financial Reports, Information Efficiency, and Stock Liquidity: Practical Guides From the Saudi Business Environment

Readability of Annual Financial Reports, Information Efficiency, and Stock Liquidity: Practical Guides From the Saudi Business Environment

COVID‐19 intensity across U.S. states and the liquidity of U.S. equity markets

AbstractWe study the effects of COVID‐19 intensity on equity market liquidity across U.S. states. We exploit cross‐sectional variation in cases and deaths to investigate any association with the deterioration of stock liquidity of firms whose headquarters or operations are in the corresponding state(s). Our motivation stems from several underlying economic channels such as order processing costs, inventory costs, and adverse selection costs. We find strong negative relations between pandemic intensity and various intra‐day liquidity measures. Our results are more pronounced for firms operating in states with more stringent containment and health measures and within industries with greater risk exposure.

Liquidity Dry-ups in equity markets

This paper examines how mutual fund investors’ demand for liquidity provision endogenously affects stock liquidity in the equity market. We find that actively managed funds in the US tend to hold less liquidity than their respective benchmarks, which leads them to rely on only a small fraction of liquid stocks when it comes to liquidity demand. Using mutual fund sell transactions, we further show that mutual funds tend to sell more liquid stocks in their holdings when experiencing outflows. Concentrated sales of liquid stocks, however, significantly reduce the liquidity of these stocks, resulting in liquidity deterioration or dry-up among highly liquid stocks in periods of high market-wide liquidity demand. Overall, the results indicate that mutual funds fail to predict the liquidity of the asset at purchase.

Cultural dispersion and stock liquidity

AbstractResearch SummaryThis paper examines whether cultural dispersion of a multinational firm affects its stock trading in the market. The result shows that the stock liquidity negatively relates to the degree of cultural dispersion, suggesting it is costlier to trade stocks of culturally diverse firms. Among five measures of stock liquidity, Chae's (2005) turnover measure demonstrates the most consistent effect after addressing potential omitted variables and selection biases. A robustness test that extends our sample to include purely domestic firms confirms the main result of the negative effect of cultural dispersion. Furthermore, while the relation between cultural dispersion and stock liquidity may not be exactly linear, such a negative association overall holds. In addition, the influence of cultural dispersion on stock trading takes effects mainly through the agency and external information environment channels and is more pronounced for lower risk‐taking multinationals.Managerial SummaryThis result has three practical implications for investment management. First, it is important to consider the internal cultural diversity when investing multinational firms. Second, the evaluation of firm liquidity goes beyond financial fundamentals or market mechanism. When a firm increase its degree of informational complexity and unfamiliarity, it tends to decrease its attractiveness to investors. Last but not least, when investing globally, cultural differences is an important consideration. Using stock liquidity as a research platform, this study suggests that the effect of cultural difference is indeed material.

Stock liquidity and stock returns: the moderating role of financial constraints

Research aims: This study aims to analyze the effect of stock liquidity on stock returns in large and small capitalization companies and the moderating role of financial constraints in the relationship. Design/Methodology/Approach: In this study, panel data analysis was conducted on 113 manufacturing sector companies on the Indonesia Stock Exchange from 2015 to 2019, grouped into small and large capitalization companies. To avoid measurement errors from applying the KZ index, which is very likely to occur, this study used the upper quartile (Q3) of the Debt-to-Equity Ratio (DER) and a dummy variable as an artificial variable to measure financial constraints instead of the KZ index.Research findings: The results highlighted that liquidity is a predictor that could significantly explain the movement of stock returns in this sector. Investors, thus, will require additional compensation in the form of higher returns for holding less liquid stock. The study also found a significant moderating role of financial constraints. Consequently, as the illiquidity of stocks increases, additional greater compensation will be requested by investors on the stocks of companies experiencing financial constraints.Theoretical contribution/Originality: This study provides additional empirical evidence for the studies documented that investors will ask for additional return compensation for stocks with low liquidity, and investors will demand higher additional returns in companies experiencing financial constraints. This finding indicates that liquidity is essential in risk premium forming stock returns.Practitioner/Policy implication: This study can be used for investors or traders when choosing an investment strategy to be carried out.

Renewable p-Xylene Production by Catalytic Conversion of Crude Bioglycerol (GTA-pX Process)

The studies report an efficient vapor-phase continuous-flow process that operates on a ZSM-5 micro–mesoporous composite catalyst system (facilitated by molecular-level interaction of tetraethyl orthosilicate (TEOS) and Zn species) for the production of sustainable para-xylene (p-X)-enriched alkyl-aromatics from crude bioglycerol. The process achieved 100% conversion of glycerol by coprocessing with methanol to produce industrially important liquid stock possessing ∼85% alkyl-aromatics, especially xylene isomers, which is the highest ever reported to the best of our knowledge. The xylene isomers consisting of ∼57% p-X are attractive for renewable petrochemical and polymer (poly(ethylene terephthalate)) production applications. The liquid stock consisting of xylene-rich alkyl-aromatics with minimum benzene content and possessing a high octane rating (research octane rating (RON) = 104) also has potential for gasoline blending applications.