Liquidity Volatility Research Articles

Corporate Sustainable Performance and Profitability: Exploring the Moderating Role of Liquidity and Stock Volatility in Egypt

Corporate Sustainable Performance and Profitability: Exploring the Moderating Role of Liquidity and Stock Volatility in Egypt

An Examination of the Relationship between Volatility, Liquidity and Trading Activity

We investigate the influence of the firm value on the relationship between equity trading activity, market liquidity and return volatility at the portfolio level. For the different firmvalue portfolio, we find that trading activity is negatively associated with liquidity but it is positively associated with volatility so higher trading activity leads to more volatile returns. For the very largest firm-value portfolio, the volatility-liquidity relationship is negative. However, this relationship is positive for other portfolios.

Does fintech matter for financial inclusion and financial stability in BRICS markets?

We investigate whether fintech development expedites financial inclusion and affects the stability of the financial sector in BRICS economies. We first seek to identify the linkage between Fintech development and financial inclusion in the BRICS economies. We then explore if Fintech poses any threat to financial stability by studying the impact of Fintech on three main factors of financial stability; Country risk, Liquidity, and Price volatility to see any possible threat to financial stability. We apply the robust Global Vector Autoregressive (GVAR) model with Bayesian framework to analyze a monthly dataset ranging from 2015 to 2022. By applying a positive shock to Fintech over financial inclusion and financial stability, we reveal a positive dynamic relationship between fintech development and financial inclusion, with fintech exhibiting a long-term influence on financial inclusion in some BRICS countries than others. However, we found no significant evidence that fintech presents any threat to financial stability; at least not in the short term. We offer several policy implications and future research directions.

Price Delay and Market Efficiency of Cryptocurrencies: The Impact of Liquidity and Volatility during the COVID-19 Pandemic

The rise of cryptocurrencies as alternative financial investments, with potential safe-haven and hedging properties, highlights the need to examine their market efficiency. This study is the first to investigate the combined impact of liquidity and volatility features of cryptocurrencies on their price delays. Using a wide spectrum of cryptocurrencies, we investigate whether the COVID-19 outbreak has affected market efficiency by studying price delays to market information. We find that as liquidity increases and volatility decreases, cryptocurrencies demonstrate stronger market efficiency. Additionally, we show that price delay differences during the COVID-19 outbreak increase with higher levels of illiquidity, particularly for highly volatile quintiles. We suggest that perceived risks and high transaction costs in illiquid and highly volatile cryptocurrencies reduce active traders’ willingness to engage in arbitrage trading, leading to increased market inefficiencies. Our findings are relevant to investors, aiding in improving their decision-making processes and enhancing their investment efficiency. Our paper also presents significant implications for policymakers, emphasizing the need for reforms aimed at enhancing the speed at which information is incorporated into cryptocurrency returns. These reforms would help mitigate market distortions and increase the sustainability of cryptocurrency markets.

Empirical Analysis of Factors Affecting Stock Liquidity --Taking Ping An Bank as an Example

With the continuous development of the Chinese economy, the stock market has become one of the important choices for investors, and the liquidity of the stock market has always been the focus of investors. Ping An Bank is one of China's well-known commercial banks and occupies an important position in the A-share market. The goal of this paper is to study the relationship between stock liquidity and return volatility, risk factors, circulation market value and cross-period of risk factors. Through ordinary least squares (OLS) regression analysis, it can be found that earnings volatility and circulating market value have an impact on stock liquidity significantly, that is, the higher the earnings volatility and circulating market value, the higher the stock liquidity. Risk factors and cross-terms of risk factors have no significant influence on stock liquidity. These findings have important implications for investors and market regulators to help them more fully assess stock value and risk and make more informed investment decisions.

To fix or not to fix: The representativeness of the WM/R methodology that underpins the FX benchmark rates. A pre-registered report

This paper examines the effectiveness of the WM/Reuters (WM/R) methodology for FX benchmark rates since its revision in 2015. After a series of market manipulation scandals, the WM/R methodology underwent significant changes to enhance its reliability and minimise the risk of market manipulation. However, the dynamic nature of the FX market, characterised by evolving investor behaviour and continuous trading, necessitates a reassessment of this benchmark’s quality. Using a comprehensive dataset of proprietary order book data from Refinitiv, our empirical study critically evaluates the WM/R methodology’s current standing in the FX market. We focus on representativeness, attainability, and robustness to determine whether lengthening the time window of the benchmark increases its reliability. We then focus on liquidity, trading activity, transaction costs, and price volatility to determine the ability of the WM/R methodology to minimise market impact during the 4 pm calculation window. Our findings aim to inform future modifications to the FX benchmark, ensuring its alignment with the evolving market environment and maintaining its role as a crucial reference point for global financial activities. This study contributes to the ongoing discourse on effective financial benchmarking, particularly in the high-stakes and continuously active realm of foreign exchange markets.

Internal Determinants of Capital Structure of Islamic Banks: Evidence from the Middle East

This study aimed to determine the factors affecting the capital structure of Islamic banks for a sample of the Middle East for the period 2011-2021. The study used a panel data method by pooling ordinary least squares, fixed effects, and random effects to determine the relationship between book leverage and internal variables such as profitability, size, non-debt tax shield, growth opportunity, tangibility, liquidity, and earnings volatility. The descriptive statistics indicate that Islamic banks are highly leveraged. The results of regression showed that the impact of profitability, size, and growth opportunity is positive on book leverage. In contrast, the results indicated a negative impact of non-debt tax shield and liquidity on book leverage. The results also showed no impact of tangibility and earnings volatility on book leverage. Based on the results, Islamic banks in the Middle East enjoy a special method of choosing capital structure depending on their competitive advantage derived from the concentration of a large proportion of Muslim people dealing with them. Nevertheless, the management of Islamic banks must take the mentioned variables into consideration.

Frequent batch auction versus continuous time auction under order cancellation and maker‐taker fee

AbstractWe investigate the consequences of different market designs and policies on market quality in a high‐frequency market. Based on an extensible theoretical framework, high‐frequency traders in our model can be either market makers or arbitragers, which leads to a Nash equilibrium between their utilities. We consider the optimal strategies of different market agents in various market conditions based on the equilibrium. We find frequent batch auctions benefit market liquidity but harm market volatility compared to continuous‐time auctions. Order cancellation ban harms market quality while the taker fee is beneficial. We also find that market design and policy changes are only effective in low‐latency markets. Finally, we address that the total effect of high‐frequency trading is positive, so it is vital to reap high‐frequency traders' benefits while minimising their harms in high‐frequency markets.

The interplay between economic policy uncertainty and corporate bond yield in emerging Asian markets

PurposeTo investigate the role of domestic and foreign economic policy uncertainty (EPU) in driving the corporate bond yields in emerging markets.Design/methodology/approachThe study utilizes monthly data from January 2008 to June 2023 from the selected emerging economies. The data analysis is conducted using univariate, bivariate and multivariate statistical techniques. The study includes bond market liquidity and global volatility (VIX) as control variables.FindingsDomestic EPU has a significant role in driving corporate bond yields in these markets. The study finds weak evidence to support the role of the USA EPU in influencing corporate bond yields in emerging economies. Domestic EPU holds more weight and influence than the EPU originating from the United States of America.Research limitations/implicationsThe findings provide useful insights to policymakers about the potential impact of policy uncertainty on corporate bond yields and enable them to make informed decisions regarding economic policies that maintains financial stability. Understanding the relationship between EPU and corporate bond yields enables investors to optimize their investment decisions in emerging market economies, opens the scope for further research on the interaction between EPU and volatility and other attributes of fixed income markets.Originality/valueFocuses specifically on the emerging market economies in Asia, providing an in-depth analysis of the dynamics and challenges faced by these countries, Explores the influence of both domestic and the USA EPU on corporate bond yields in emerging markets, offering valuable insights into the transmission channels and impact of EPU from various sources.

High-Frequency Trading Strategies and their Market Impact in Kenya's Capital Market Authority

This study explores the impact of high-frequency trading (HFT) on financial markets in Kenya compared to established economies like the United States and Europe. Through a comparative analysis, the research highlights significant differences in market liquidity, regulatory frameworks, technological infrastructure, investor behavior, and price volatility. The findings indicate that while HFT generally enhances liquidity in developed markets by narrowing bid-ask spreads, its introduction in Kenya may not yield similar benefits due to historically lower trading volumes and limited participation. The regulatory environment in Kenya is underdeveloped, posing challenges for effective oversight and risk management, in contrast to the comprehensive frameworks in established markets. Technological disparities further hinder local firms from competing effectively in HFT, as essential infrastructure such as low-latency data feeds and co-location services is lacking. Moreover, the impact of HFT on market behavior in Kenya is less pronounced, with insufficient competitive pressure for traditional investors to adopt algorithmic strategies. Concerns about increased price volatility in Kenya are heightened by inadequate regulatory safeguards, potentially leading to market instability. The study emphasizes the need for tailored regulatory approaches and technological investments to harness HFT's potential benefits while mitigating associated risks in emerging markets.

Liquidity Premium, Liquidity-Adjusted Return and Volatility, and Extreme Liquidity

Liquidity Premium, Liquidity-Adjusted Return and Volatility, and Extreme Liquidity

Analysis of Hedging for Mitigating Exchange Rate Fluctuations in Indonesia, With A Logistic Regression Approach (Empirical Study of Consumer Cyclical Companies)

The consumer cyclical companies are affected by exchange rate fluctuations and require hedging. Hedging is an action taken to reduce potential risk by mitigating exposure to price movements of an asset. This study determined how companies use hedging products and the factors that encourage companies to hedge. The companies used as research were 24 listed at IDX with a period of 17 years (2006 to 2022), and the analysis method used in this study was a logit regression. The most common derivatives firms use are cross-currency swaps, followed by call spreads. The decision to hedge is influenced by several factors: profitability, firm size, growth, liquidity, leverage, hedging regulation, and cash flow volatility. Examination of the regulation is the first research related to hedge decisions. Profitability, firm size, and cash flow volatility are variables with significant and positive results, while the negative but significant relationships with hedging decisions are leverage, liquidity, and hedging regulation. Furthermore, firms are expected to undertake or increase hedging activities if there are more positive internal supporting factors, and the government is expected to help create sustainable and comprehensive legal tools to create a more conducive climate to increase hedging activities.

From liquidity risk to systemic risk: A use of knowledge graph

In this paper, we use knowledge graph (KG) to study systemic risk in the banking industry. KG provides a graphic representation of the connections of entities of interest (known as vertices or nodes) with the strengths of connections being reflected by the lines connecting them (known as edges) or distances between them. As a result, KG is a natural tool for visualizing the relationships among financial institutions. Furthermore, various data and graph choices can present how differently entities of interest can be connected. In this paper, we draw KGs on two datasets: liquidity index and volatility and three different embedding methods: locally linear embedding, spectral embedding and principal component analysis. Our empirical results show, not surprisingly, that volatility and liquidity index are not similar in explaining how banks are connected. Embedding methods also matter.

Global economic policy uncertainty and the stability of cryptocurrency returns: The role of liquidity volatility

This paper examines the influence of global economic policy uncertainty on the stability of cryptocurrency returns and the moderating role of liquidity volatility. Findings reveal that the stability of cryptocurrency returns is higher when economic policy uncertainty is higher, implying that cryptocurrencies may be perceived as a safe-haven asset against economic policy uncertainty during the sample period. More importantly, investors in the cryptocurrency market perceive liquidity volatility as liquidity risk, and cryptocurrencies will no longer be a safe haven against economic policy uncertainty when liquidity volatility is high. Further research shows that investors tend to ignore the risks associated with liquidity volatility when the stock market is in a fearful mood or the cryptocurrency market is in a greedy mood. Furthermore, during the COVID-19 pandemic, investors became more concerned about liquidity volatility in cryptocurrencies, suggesting a rise in risk aversion.

Liquidity shocks and the negative premium of liquidity volatility around the world

We find that liquidity volatility negatively affects stock returns across international markets. This association remains consistent across various liquidity metrics and cannot be attributed to the influence of idiosyncratic volatility. Further analysis shows that the omitted liquidity decrease variable is the key driver of the negative premium of liquidity volatility. Considering the asymmetrical impact of liquidity decrease and increase on future stock returns, stocks displaying high liquidity volatility tend to experience significant liquidity decreases, which lead to lower average returns. Once the liquidity decrease is integrated into the pricing model, the negative return premium of liquidity volatility dissipates. Subsequent analysis underscores that the effect of liquidity decrease on returns is more pronounced in markets and periods characterized by diminished efficiency and heightened arbitrage costs.

The impact of regulation on cryptocurrency market volatility in the context of the COVID-19 pandemic — evidence from China

This paper aims to examine the impact of regulatory policies on cryptocurrency market volatility in the context of the COVID-19 pandemic. We find that price volatility, liquidity volatility, and return volatility in the cryptocurrency market increased significantly following regulatory announcements by Chinese policymakers targeting the cryptocurrency industry, and this effect was more pronounced during the COVID-19 pandemic. It indicates that investors are paying a great deal of attention to such events. Yet further findings suggest that as the risk of pandemic transmission increases and stock market returns decline, investor response to regulation decreases. Our findings also suggest that while regulation typically brings market volatility in cryptocurrencies, the release of regulatory policies can instead be beneficial to the stability of the cryptocurrency market when investors are in an highly greedy mood.

Liquidity, Volume, and Order Imbalance Volatility

ABSTRACTWe examine the dynamics of liquidity using a comprehensive sample of U.S. stocks in the post‐decimalization period. Motivated by a continuous‐time inventory model, we compute a high‐frequency measure of order imbalance volatility to proxy for the inventory risk faced by liquidity providers. We show that high‐frequency order imbalance volatility is an important driver of liquidity and explains the often positive time‐series relation between spread and volume for large stocks, which seems to run counter to most theoretical models. Furthermore, order imbalance volatility is priced in the cross‐section of stock returns.

Percepatan Struktur Modal Perusahaan Sektor Kesehatan Indonesia

The aim of this research is to determine the influence of profitability, growth opportunities, liquidity, cash flow volatility, earning volatility and the magnitude of the acceleration of the capital structure of health sector companies in Indonesia in 2010-2022. The data analysis used is a dynamic capital structure model with a Partial Adjustment Model (PAM) approach which involves lag variables, determining factors of optimal capital structure and acceleration of capital structure in one equation. PAM model parameter estimation uses GMM with the aim of overcoming the problem of endogeneity. The GMM model test results show consistent, valid and unbiased. So the health sector company data is in accordance with the dynamic capital structure model, which is indicated by the coefficient value of the lag variable of 0.5821 which is smaller than 1 which is significant at an alpha of 0.05. The company's response to returning to an optimal capital structure is shown by an acceleration value (SOA) of 41.79%, with a time period of 1.3 years. Performance factors that have a negative influence on optimal capital structure are growth opportunities, liquidity and earnings volatility. Cash flow volatility has a positive influence. Meanwhile, profitability has no influence on optimal capital structure.

Corporate sustainability performance and profitability: The moderating role of liquidity and stock price volatility - evidence from Jordan

Corporate sustainability performance and profitability: The moderating role of liquidity and stock price volatility - evidence from Jordan

Liquidity, Trading Activity, and Stock Price Volatility

Purpose: While the bulk of previous research focused on security-level volatility and the relationship of its determinants, the current study considers the relationship between the number of trades, lagged absolute returns, trading volume, bid-ask spread, and price volatility on the Zimbabwe stock market. Methods: The study applied Hausman's (1982) tests of the specification. The parameters and elasticity of explanatory variables have been estimated by utilizing the Generalized Method of Moments (GMM) procedure in a five-equation structural model. The data were obtained from a web-based financial market platform, Investing.com for the period between 2009 and 2021. Results: Results show that inflation had a positive relationship with stock price volatility, which provided a hedge against inflation. There exists an indistinguishable difference between the random effects (RE) and fixed effects (FE) results and those obtained using the Pooled Ordinary Least Squares (POLS) on the total sample reflecting a cohesion of these findings. Implications: Understanding the relationship between inflation and market risk (volatility) can be beneficial to the investor in selecting the appropriate and most convenient investment strategy. From a policy-making perspective, strategic policy measures employed towards reducing inflation would certainly reduce stock market volatility and boost investor confidence.