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Illiquidity Premium and Monetary Conditions in Emerging Markets: An Empirical Examination of Taiwan Stock Markets

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Listed:
  • Chia-Cheng Chen

    (Department of Finance, Ling Tung University of Science and Technology, Taiwan,)

  • Chia-Li Tai

    (Department of Finance, National Yunlin University of Science and Technology, Taiwan.)

  • Yi-Sheng Liu

    (Department of Finance, National Yunlin University of Science and Technology, Taiwan.)

Abstract

This study empirically examines the illiquidity premium of Taiwan stock markets and its relationship with monetary policies. We find that commonly used illiquidity measures are generally sensitive and capable of capturing market illiquidity, particularly during the most volatile periods. Evidence shows that unconditional illiquidity is significantly priced across three illiquidity measures during the sample period. Aggregate market illiquidity innovations are noticeably affected by monetary policies. The results of Granger causality tests reveal that expansive monetary policy improves market illiquidity, whereas restrictive policy adversely affects market liquidity.

Suggested Citation

  • Chia-Cheng Chen & Chia-Li Tai & Yi-Sheng Liu, 2020. "Illiquidity Premium and Monetary Conditions in Emerging Markets: An Empirical Examination of Taiwan Stock Markets," International Journal of Economics and Financial Issues, Econjournals, vol. 10(1), pages 109-117.
    • Handle: RePEc:eco:journ1:2020-01-14
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    References listed on IDEAS

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    More about this item

    Keywords

    Illiquidity; illiquidity premium; monetary policy; asset pricing; Granger's causality tests;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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