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Measuring liquidity in emerging markets

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  • Kang, Wenjin
  • Zhang, Huiping

Abstract

We propose a modified version of the Amihud illiquidity measure, AdjILLIQ, which performs well in different types of emerging markets. Our AdjILLIQ measure combines the virtues of the original Amihud ratio and the non-trading-frequency measure. It exhibits higher correlation with spread and price impact than other existing low-frequency liquidity measures in most of our sample markets. The improvement gained from using our AdjILLIQ measure is particularly significant in inactively-traded markets and low-turnover stocks. We find that the liquidity in emerging markets, as measured by AdjILLIQ, can be improved by better disclosure and less information asymmetry. Furthermore, the liquidity dry-up during market downturns can also be alleviated by better information environment.

Suggested Citation

  • Kang, Wenjin & Zhang, Huiping, 2014. "Measuring liquidity in emerging markets," Pacific-Basin Finance Journal, Elsevier, vol. 27(C), pages 49-71.
    • Handle: RePEc:eee:pacfin:v:27:y:2014:i:c:p:49-71
    DOI: 10.1016/j.pacfin.2014.02.001
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    15. Butt, Hilal Anwar & Demirer, Riza & Sadaqat, Mohsin & Suleman, Muhammad Tahir, 2022. "Do emerging stock markets offer an illiquidity premium for local or global investors?," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 502-515.
    16. Priyanka Naik & Y. V. Reddy, 2021. "Stock Market Liquidity: A Literature Review," SAGE Open, , vol. 11(1), pages 21582440209, January.
    17. Hamdan Amer Al-Jaifi & Ahmed Hussein Al-rassas & Adel Ali AL-Qadasi, 2017. "Corporate governance strength and stock market liquidity in Malaysia," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 13(5), pages 592-610, August.
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    22. Mu-Shun Wang, 2022. "Shareholder Disputes and Commonality in Liquidity: Evidence from the Equity Markets in China," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(2), pages 291-325, June.

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    Keywords

    Liquidity measure; Emerging markets;

    JEL classification:

    • G19 - Financial Economics - - General Financial Markets - - - Other

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