New evidence on the relation between stock liquidity and measures of trading activity

Daniel Chai; Robert Faff; Philip Gharghori

doi:10.1016/j.irfa.2010.02.005

New evidence on the relation between stock liquidity and measures of trading activity

Daniel Chai, Robert Faff, Philip Gharghori

Research output: Contribution to journal › Article › peer-review

Abstract

The goal of this paper is to examine two empirical issues regarding stock liquidity: (1) to what degree are different liquidity proxies correlated? and (2) how are different liquidity proxies related to stocks' trading characteristics? Answers to these questions will help us better understand whether there are common sources of liquidity. This has considerable implications for studying stock liquidity, since selecting an appropriate proxy for liquidity is an important issue in empirical research design. Using data from the Australian equity market, our results confirm prior research that stocks' trading characteristics are important determinants of liquidity. Though the relationships are generally consistent with expectations, some proxies do react differently to certain trading characteristics. This finding is consistent with the contention that liquidity is a multifaceted concept and each alternative proxy may only capture a certain aspect of liquidity.

Original language	English
Pages (from-to)	181-192
Number of pages	12
Journal	International Review of Financial Analysis
Volume	19
Issue number	3
DOIs	https://doi.org/10.1016/j.irfa.2010.02.005
Publication status	Published - 2010

Keywords

liquidity
securities
stock exchanges

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10.1016/j.irfa.2010.02.005

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title = "New evidence on the relation between stock liquidity and measures of trading activity",

abstract = "The goal of this paper is to examine two empirical issues regarding stock liquidity: (1) to what degree are different liquidity proxies correlated? and (2) how are different liquidity proxies related to stocks' trading characteristics? Answers to these questions will help us better understand whether there are common sources of liquidity. This has considerable implications for studying stock liquidity, since selecting an appropriate proxy for liquidity is an important issue in empirical research design. Using data from the Australian equity market, our results confirm prior research that stocks' trading characteristics are important determinants of liquidity. Though the relationships are generally consistent with expectations, some proxies do react differently to certain trading characteristics. This finding is consistent with the contention that liquidity is a multifaceted concept and each alternative proxy may only capture a certain aspect of liquidity.",

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N2 - The goal of this paper is to examine two empirical issues regarding stock liquidity: (1) to what degree are different liquidity proxies correlated? and (2) how are different liquidity proxies related to stocks' trading characteristics? Answers to these questions will help us better understand whether there are common sources of liquidity. This has considerable implications for studying stock liquidity, since selecting an appropriate proxy for liquidity is an important issue in empirical research design. Using data from the Australian equity market, our results confirm prior research that stocks' trading characteristics are important determinants of liquidity. Though the relationships are generally consistent with expectations, some proxies do react differently to certain trading characteristics. This finding is consistent with the contention that liquidity is a multifaceted concept and each alternative proxy may only capture a certain aspect of liquidity.

AB - The goal of this paper is to examine two empirical issues regarding stock liquidity: (1) to what degree are different liquidity proxies correlated? and (2) how are different liquidity proxies related to stocks' trading characteristics? Answers to these questions will help us better understand whether there are common sources of liquidity. This has considerable implications for studying stock liquidity, since selecting an appropriate proxy for liquidity is an important issue in empirical research design. Using data from the Australian equity market, our results confirm prior research that stocks' trading characteristics are important determinants of liquidity. Though the relationships are generally consistent with expectations, some proxies do react differently to certain trading characteristics. This finding is consistent with the contention that liquidity is a multifaceted concept and each alternative proxy may only capture a certain aspect of liquidity.

KW - liquidity

KW - securities

KW - stock exchanges

UR - http://handle.uws.edu.au:8081/1959.7/uws:30075

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SP - 181

EP - 192

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

IS - 3

ER -

New evidence on the relation between stock liquidity and measures of trading activity

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Keywords

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