Liquidity Across Developed and Emerging Markets

39 Pages Posted: 15 Mar 2006

Date Written: August 2005

Abstract

This paper analyzes market-wide liquidity using weekly data from 1990 to 2002 for a sample of 18 developed and emerging markets. The results suggest that market-wide liquidity is cross-sectionally determined by several country level variables: market returns and return volatilities, interest rates, and equity and bond portfolio country flows. Furthermore, there is evidence that the global components of these country-level variables are at least as important in explaining liquidity as country-specific information. Hence, the results support the notion of a global liquidity factor. A dynamic analysis of liquidity further confirms these variables as determinants of relative changes in liquidity. While common and country-specific factors help explain liquidity across countries and time, the pairwise correlation of changes in liquidity is low. The results from using extreme value theory to investigate whether shocks to liquidity are more strongly correlated during extreme market conditions offer no evidence of contagion.

Keywords: Determinants of Stock Market Liquidity, Global Liquidity Factor, Liquidity Contagion

JEL Classification: G10, G15

Suggested Citation

Stahel, Christof W., Liquidity Across Developed and Emerging Markets (August 2005). Available at SSRN: https://ssrn.com/abstract=772089 or http://dx.doi.org/10.2139/ssrn.772089

Christof W. Stahel (Contact Author)

Investment Company Institute ( email )

1401 H Street, NW
Washington, DC 20005
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
463
Abstract Views
2,068
Rank
114,029
PlumX Metrics