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Relationship between Liquidity, Volatility and Trading Activity: An Intraday Analysis of Indian Stock Market

Author

Listed:
  • Namitha K. Cheriyan

    (CHRIST (Deemed to be University), Bengaluru, India,)

  • Lazar Daniel

    (Pondicherry University, Puducherry, India)

Abstract

The liquidity crunch arising out of volatile market conditions is a significant concern for investors across the globe. The trading activity in the market is an important attribute determining the liquidity as well as the volatility of any stock market. Given this triangular relationship, this study analyzes the relationship between liquidity, volatility and trading activity in the Indian stock market. Employing OLS regression estimates, the study identifies a contraction in liquidity in response to greater trading activity which is found to be increasing volatility in the market. It finds that higher volatility in Indian market is associated with greater illiquidity in the market. Even after adjusting for the impact of trading activity, volatility is found to be exhibiting a statistically significant impact on liquidity.

Suggested Citation

  • Namitha K. Cheriyan & Lazar Daniel, 2019. "Relationship between Liquidity, Volatility and Trading Activity: An Intraday Analysis of Indian Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 9(1), pages 17-22.
    • Handle: RePEc:eco:journ1:2019-01-3
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    Citations

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    Cited by:

    1. Siti Nurlaela & Bambang Mursito & Eny Kustiyah & Istiqomah & Sri Hartono, 2019. "Asset Turnover, Capital Structure and Financial Performance Consumption Industry Company in Indonesia Stock Exchange," International Journal of Economics and Financial Issues, Econjournals, vol. 9(3), pages 297-301.
    2. Uhunmwangho, Monday, 2022. "Determinants of Stock Market Volatility in Africa," African Journal of Economic Review, African Journal of Economic Review, vol. 10(2), March.

    More about this item

    Keywords

    Indian stock market; intraday liquidity; OLS regression; trading activity; volatility;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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