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Analysis of the dynamic relationship between liquidity proxies and returns on the French CAC 40 index

Author

Listed:
  • Ayad Assoil

    (MRE-Montpellier Recherche en Economie, UM-Université de Montpellier)

  • Ndéné Ka

    (Université Alioune Diop de Bambey)

  • Jules Sadefo-Kamdem

    (MRE-Montpellier Recherche en Economie, UM-Université de Montpellier)

Abstract

The aim of this paper is to analyze the dynamic evolution of six liquidity proxies on time and to find their causality with the French CAC 40 stock market index returns, over the period from January 2007 to December 2018. To this end, we use a vector autoregressive approach and the impulse response function and we perform the Granger causality test between the CAC 40 index returns and six different liquidity proxies. Empirical results suggest a significant short-term relationship between the returns and the liquidity. As for causality test, the results reveal that there is unidirectional causality running from returns to liquidity.

Suggested Citation

  • Ayad Assoil & Ndéné Ka & Jules Sadefo-Kamdem, 2021. "Analysis of the dynamic relationship between liquidity proxies and returns on the French CAC 40 index," SN Business & Economics, Springer, vol. 1(10), pages 1-23, October.
    • Handle: RePEc:spr:snbeco:v:1:y:2021:i:10:d:10.1007_s43546-021-00129-7
    DOI: 10.1007/s43546-021-00129-7
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    More about this item

    Keywords

    Liquidity risk; Market risk; VAR model; Granger causality; Impulse response function; CAC 40 market;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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