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Bidirectional Relationship between Stock Market Decline and Liquidity: A Study of Emerged & Emerging Economies

Author

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  • Maria Shams Khakwani
  • Rehana Kouser

Abstract

Purpose: This study intends to examine the nature direction of relationship between stock market movements, particularly market decline, and its liquidity in 14 selected emerged and emerging economies (G8+5 and Pakistan) for January 2001 through December 2017 by applying Autoregressive Distributed Lag (ARDL) Bounds test and Granger-causality test. Trading value and turnover ratio are employed to measure market liquidity.Methodology: The study is conducted on a sample of 14 economies (G8 + 5 emerging economies, and Pakistan) for January 2001 through December 2017. Daily basis data for all variables is collected from data stream and Economic Indicator website. Market Liquidity is measured by trading value and turnover ratioFindings: Results of trading value Granger-causality test highlight the evidence of no causality in Germany India. Bi-directional causality exists in Pakistan only. Uni-directional causality subsists only in Russia at 10% significance level from trading value to market return. However, from market return to trading value, results demonstrate the presence of uni-directional causality at 5% significance level for Brazil, Japan. Canada, China, France, Italy, UK, USA, South Africa and Mexico. Negative returns are used to represent the notion of market decline.Implications: Study summarizes the stock market movements of emerging and emerged countries which will be helpful for future researchers and policy makers in their projects.

Suggested Citation

  • Maria Shams Khakwani & Rehana Kouser, 2021. "Bidirectional Relationship between Stock Market Decline and Liquidity: A Study of Emerged & Emerging Economies," Journal of Business and Social Review in Emerging Economies, CSRC Publishing, Center for Sustainability Research and Consultancy Pakistan, vol. 7(1), pages 81-94, March.
    • Handle: RePEc:src:jbsree:v:7:y:2021:i:1:p:81-94
    DOI: http://doi.org/10.26710/jbsee.v7i1.1532
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