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Macroeconomic Instability, Aggregate Financial Liquidity And Stock Market Liquidity

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  • Monday UHUNMWANGHO

    (University of Benin, Benin City, Edo State, Nigeria)

  • Eseoghene Joseph IDOLOR

    (University of Benin, Edo State, Nigeria)

Abstract

This study examined the effects of macroeconomic instability and aggregate liquidity on stock market liquidity. Macroeconomic instability constitutes risk for investments, whereas financial liquidity encourages trading at the exchange. The purpose of this study was to investigate the combined impact of macroeconomic instability and financial liquidity measured at the aggregate level on stock market liquidity in Africa. A cross-section of 16 African countries who are members of African Security Exchange Association (ASEA) were engaged for period from 2013 to 2019. The dynamic model and the Generalized Method of Moments (GMM) in first difference transformation regression technique constitute the methods. This study found that macroeconomic instability has positive and significant effect on market liquidity, while diaspora remittances negatively and significantly influenced it. Bank liquidity and aggregate money supply positively and significantly determined stock market liquidity. This study concluded that the challenge of stock market liquidity in Africa could be tackled through diaspora remittances, bank liquidity and money supply because they have the potential to reduce the cost of raising capital and stimulate trading activities at the exchange, thereby influencing stock market liquidity.

Suggested Citation

  • Monday UHUNMWANGHO & Eseoghene Joseph IDOLOR, 2022. "Macroeconomic Instability, Aggregate Financial Liquidity And Stock Market Liquidity," European Journal of Accounting, Finance & Business, "Stefan cel Mare" University of Suceava, Romania - Faculty of Economics and Public Administration, West University of Timisoara, Romania - Faculty of Economics and Business Administration, vol. 10(2), pages 10-17, June.
    • Handle: RePEc:scm:ejafbu:v:10:y:2022:i:2:p:10-17
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