Market liquidity and stock size premia in emerging financial markets

Liquidity plays a vital role in the financial markets, affecting a myriad of factors including stock prices, returns, and risk. In the stock market, liquidity is usually measured through the order book, which captures the orders placed by traders to buy and sell stocks at different price points. The introduction of electronic trading systems in recent years made the deeper layers of the order book more accessible to traders and thus of greater interest to researchers. This paper examines the efficacy of leveraging the deeper layers of the order book when forecasting quoted depth—a measure of liquidity—on a per-minute basis. Using Deep Feed Forward Neural Networks, we show that the deeper layers do provide additional information compared to the upper layers alone.

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DO CIRCUIT BREAKERS IMPEDE TRADING BEHAVIOR? A STUDY IN CHINESE FINANCIAL MARKET

The Singapore Economic Review ◽

10.1142/s0217590819500565 ◽

2019 ◽

Vol 64 (05) ◽

pp. 1-18

Author(s):

KUN LI

Keyword(s):

Financial Markets ◽

Financial Market ◽

Circuit Breaker ◽

Market Liquidity ◽

Trading Behavior ◽

Circuit Breakers ◽

Short Life ◽

Large Market ◽

Magnet Effect ◽

Negative Impacts

As the most influential regulation in 2016, China launched circuit breakers in the financial markets. However, the circuit breaker mechanism was implemented for only four days and then suspended. Many criticisms then stated that circuit breakers impeded trading behavior in Chinese financial markets. This study explores this short-life circuit breaker mechanism in China, and examines whether circuit breakers impede trading behavior in Chinese financial markets as many criticisms stated. We use an intraday dataset and investigate the circuit breakers. Contrary to those criticisms, we find that circuit breakers are not easily reachable and have no “magnet effect” between two thresholds of breakers. We also find that without protection of circuit breakers, potential large market fluctuations will have negative impacts on individual stocks’ liquidity and value. As the major contribution, our study indicates that Chinese financial markets still need a circuit breaker mechanism to protect investors’ benefits and maintain the market liquidity and stability.

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The Influence of Internal Contradictions in the Us Economy on Global Financialization and the Expansion of Fictitious Capital

Finance Theory and Practice ◽

10.26794/2587-5671-2021-25-2-6-34 ◽

2021 ◽

Vol 25 (2) ◽

pp. 6-34

Author(s):

D. A. Dinets ◽

R. A. Kamaev

Keyword(s):

Financial Markets ◽

Global Economy ◽

Capital Investment ◽

Balance Sheet ◽

The United States ◽

Market Liquidity ◽

Financial Flows ◽

Us Economy ◽

Fictitious Capital ◽

The Us

The financialization genesis of the global economy centered in the United States is on the bifurcation point now— a fictive capital’ expansion is damaging with the social capital regeneration mechanism disaster. The method of identifying and estimating the fictive capital’ extension is absent for now. The fictive capital exists as a metaphor on the science papers but not as an institutional basis of the capital flows directions. The paper aims to update the configuration of the global financial system, its dependence on the performance of US corporations and banks; to identify the sources of vulnerability of world finance and global liquidity from the fictitious capital of American financial markets. The methodology is theoretical pattern’ of financial capital movements and its real statistical market indicators comparison. The empirical base is statistical data about the financial flows and financial results especially about the US as a global financial center. Based on the results the authors have revealed an origin of fictive capital on the US bank sector by the justification for the conclusion of liquidity above the profitable as the purpose of financial operations. This conclusion is confirmed with the scale of off-balance sheet transactions of banks. Besides the regression between the prices of derivative’ basis assets and stock indexes has been shown. Also, the market capitalization of American companies is not sensitive to change in market liquidity indicators. The authors concluded that global financialization is supported by significant internal contradictions in the US economy. The source of contradictions is the financial mechanism for withdrawing liquidity from the sphere of production and circulation into the sphere of financial markets. Capital investment using instruments of the US financial market entails the threat of losing their liquidity. Forecasting the dynamics of the global economy without taking into account the role of fictitious capital, which is emerging in the American financial markets, leads to global vulnerability and may cause the next financial crisis.

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The Behavior of Fixed-income Funds during COVID-19 Market Turmoil

Analytical Notes ◽

10.5089/9781513563695.064 ◽

2020 ◽

Vol 20 (02) ◽

Author(s):

Frank Hespeler ◽

Felix Suntheim

Keyword(s):

Financial Markets ◽

Financial Stability ◽

Market Liquidity ◽

Portfolio Performance ◽

Fixed Income ◽

Asset Sales ◽

Treasury Securities ◽

Short Period ◽

Valuation Uncertainty ◽

Asset Managers

This note analyzes the stress experienced (and caused) by open-end mutual funds during the March COVID-19 stress episode, with a focus on global fixed-income funds. In light of increased valuation uncertainty, funds experienced a short period of intense withdrawals while the market liquidity of their holdings deteriorated substantially. To cover redemptions, afflicted funds predominantly shed liquid assets first—for example, cash, cash equivalents, and US Treasury securities. But forced asset sales amplified price pressures in markets and contributed to liquidity falling across fixed-income markets. This drop in market liquidity, as well as the general stress in financial markets, may have led to fund investors becoming even more sensitive to challenging portfolio performance and encouraged further withdrawals. Only after central banks intervened, directly and indirectly supporting asset managers, did liquidity and redemption stress subside. Overall, the March episode validated the financial-stability concerns about liquidity vulnerabilities in the fund industry and calls for further action to address them.

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Financial market liquidity, returns and market growth: evidence from Bolsa and Börse, 1902–1925

Financial History Review ◽

10.1017/s0968565010000016 ◽

2010 ◽

Vol 17 (1) ◽

pp. 73-98 ◽

Cited By ~ 4

Author(s):

Lyndon Moore

Keyword(s):

Financial Markets ◽

Financial Market ◽

Growth And Development ◽

Important Determinant ◽

Market Liquidity ◽

Cross Sectional ◽

Data Set ◽

Liquidity Shocks ◽

Market Growth ◽

Unique Data

The article is based on a unique data set of securities traded on the Madrid Bolsa and the Zurich Börse between 1902 and 1925. We examine the pricing of liquidity and demonstrate that the liquidity level of securities was an important determinant of cross-sectional returns. Factors that are usually found important in contemporary markets, such as securities' sensitivity to market-wide liquidity shocks and market movements, turn out to have been irrelevant in the early twentieth century. In addition, the illiquidity of the Madrid market appears to have modestly slowed capital raising there. Our results suggest that market liquidity was an important determinant of the growth and development of financial markets.

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Stock Market Liquidity And Dividend Policy In Korean Corporations

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v33i4.9995 ◽

2017 ◽

Vol 33 (4) ◽

pp. 729 ◽

Cited By ~ 1

Author(s):

Jeong Hwan Lee ◽

Bohyun Yoon

Keyword(s):

Financial Markets ◽

Dividend Policy ◽

Empirical Studies ◽

Explanatory Power ◽

Negative Relationship ◽

Market Liquidity ◽

Stock Liquidity ◽

International Evidence ◽

Dividend Payments

The liquidity hypothesis predicts a negative relationship between stock liquidity and dividend payout propensity, i.e., a firm will decide to pay dividends to compensate for the liquidity demand of investors. This study comprehensively examines whether the liquidity hypothesis applies to the sample of Korean firms listed in the KOSPI and KOSDAQ markets. The main results of this paper are as follows. First, the dividend policy in Korean firms does not support the liquidity hypothesis, contradictory to the existing empirical studies. Next, the explanatory power of the liquidity hypothesis is even weaker for the KOSDAQ market, inconsistent with international evidence. Finally, even when we focus on the firm-year observations with non-negligible dividend payments, the liquidity hypothesis does not explain the dividend policy of Korean firms either. Our findings significantly contribute to the literature by robustly confirming the very limited role of the liquidity hypothesis for Korean financial markets.

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Market Liquidity and Its Dimensions: Linking the Liquidity Dimensions to Sentiment Analysis through Microblogging Data

Journal of Risk and Financial Management ◽

10.3390/jrfm14090394 ◽

2021 ◽

Vol 14 (9) ◽

pp. 394

Author(s):

Francisco Guijarro ◽

Ismael Moya-Clemente ◽

Jawad Saleemi

Keyword(s):

Financial Markets ◽

Sentiment Analysis ◽

Trading Volume ◽

Price Dispersion ◽

Daily Basis ◽

Market Liquidity ◽

Financial Information ◽

Counterparty Risk ◽

Trading Costs ◽

Investor Sentiments

Market liquidity has an immediate impact on the execution of transactions in financial markets. Informed counterparty risk is often priced into market liquidity. This study investigates whether microblogging data, as a non-financial information tool, is priced along with market liquidity dimensions. The analysis is based on the Australian Securities Exchange (ASX), and from the results, we conclude that microblogging content in pessimistic periods has a higher impact on liquidity and its dimensions. On a daily basis, pessimistic investor sentiments lead to higher trading costs, illiquidity, a larger price dispersion and a lower trading volume.

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