Is the relationship between macroeconomy and stock market liquidity mutually reinforcing? Evidence from an emerging market Online publication date: Tue, 16-Aug-2016
by Ijaz Ur Rehman; Nurul Shahnaz Mahdzan; Rozaimah Zainudin
International Journal of Monetary Economics and Finance (IJMEF), Vol. 9, No. 3, 2016
Abstract: This study investigates whether macroeconomic variables and stock market liquidity have any impact on each other in an emerging market. The Granger causality test and innovative accounting approach (IAA) are used to test the causality among the variables of interest over the period of 2000 M1-2014 M12. Our results suggest that in the short-run, monetary base, interest rate, inflation and foreign equity net inflow have a lagged impact on stock market liquidity. The causality analyses suggest that only industrial production and foreign equity net inflow cause stock market liquidity. The IAA approach suggests that shocks to inflation and foreign equity net inflow increase stock market illiquidity while positive shocks to industrial production decrease stock market illiquidity. Our results suggest weak evidence of feedback from stock market liquidity to macroeconomic variables.
Online publication date: Tue, 16-Aug-2016
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Monetary Economics and Finance (IJMEF):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email email@example.com