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Risk perceptions and international stock market liquidity

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  • Ma, Rui
  • Anderson, Hamish D.
  • Marshall, Ben R.

Abstract

We use regression analysis to quantify the impact of investors’ risk perceptions, as measured by VIX, on stock market liquidity in 57 countries. We show that increased risk perception reduces liquidity around the world, and its impact is not subsumed by other well-documented market-level determinants of liquidity. The effect is pervasive, but is stronger in countries with higher GDP per capita, more trade openness, stronger governance, a more individualistic culture, and no short-selling constraints. It is not driven by periods of extreme changes in risk perception, expansionary or recessionary phases of the business cycle, or the way liquidity is measured.

Suggested Citation

  • Ma, Rui & Anderson, Hamish D. & Marshall, Ben R., 2019. "Risk perceptions and international stock market liquidity," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 62(C), pages 94-116.
    • Handle: RePEc:eee:intfin:v:62:y:2019:i:c:p:94-116
    DOI: 10.1016/j.intfin.2019.06.001
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    More about this item

    Keywords

    Liquidity; International stock markets; Risk perception; VIX;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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