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

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  • Chai, Daniel
  • Faff, Robert
  • Gharghori, Philip

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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  • Chai, Daniel & Faff, Robert & Gharghori, Philip, 2010. "New evidence on the relation between stock liquidity and measures of trading activity," International Review of Financial Analysis, Elsevier, vol. 19(3), pages 181-192, June.
    • Handle: RePEc:eee:finana:v:19:y:2010:i:3:p:181-192
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