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Systematic Sentiment Risk & Market Liquidity: Systematic Liquidity Pricing in Light of the Microblogging Content

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  • Jawad Saleemi

    (Business School, Universitat Politècnica de València, València, Spain)

Abstract

Investors are keenly interested in the risk of informed trading, as it can have an immediate impact on transaction costs imposed by liquidity providers. This paper examines microblogging-based informed trading as a systematic risk for liquidity at both market and firm levels. Assets at firm level were categorized into financial and non-financial perspective. In this context, the study constructed a bank index and non-financial firms (NFF) index within the broader market. In a relative market, the liquidity was priced pessimistically and a higher probability for appearance of spread was noted during pessimism environments. The bank index liquidity was significantly responsive towards systematic bearish and bullish sentiments. In addition, the posterior probability of systematic sentiment risk was considerably higher for bank assets’ liquidity. The NFF index liquidity was not exposed to the systematic bearish and bullish sentiments. Meantime, the posterior probability of systematic sentiment risk was considerably lower for non-financial assets’ liquidity. The relative market’s liquidity was not influenced by changes in past series of bearish and bullish sentiments. Similarly, the sentiments’ lags were not strong enough to impact the firm index liquidity in the short or long run.

Suggested Citation

  • Jawad Saleemi, 2025. "Systematic Sentiment Risk & Market Liquidity: Systematic Liquidity Pricing in Light of the Microblogging Content," Journal of Economic Analysis, Anser Press, vol. 4(2), pages 18-35, June.
    • Handle: RePEc:bba:j00001:v:4:y:2025:i:2:p:18-35:d:405
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    References listed on IDEAS

    as
    1. Mazboudi, Mohamad & Khalil, Samer, 2017. "The attenuation effect of social media: Evidence from acquisitions by large firms," Journal of Financial Stability, Elsevier, vol. 28(C), pages 115-124.
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