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Market volatility, liquidity shocks, and stock returns: Worldwide evidence

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

Abstract

We examine the interaction between market volatility, liquidity shocks, and stock returns in 41 countries over the period 1990–2015. We find liquidity is an important channel through which market volatility affects stock returns in international markets and we show this is distinct from the direct volatility–return relation. The influence of the liquidity channel on the link between market volatility and returns is stronger in markets exhibiting higher levels of market volatility and lower trading volume. It is also stronger in countries with better governance, no short-selling constraints, and more high-frequency trading and during crisis periods.

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  • Ma, Rui & Anderson, Hamish D. & Marshall, Ben R., 2018. "Market volatility, liquidity shocks, and stock returns: Worldwide evidence," Pacific-Basin Finance Journal, Elsevier, vol. 49(C), pages 164-199.
    • Handle: RePEc:eee:pacfin:v:49:y:2018:i:c:p:164-199
    DOI: 10.1016/j.pacfin.2018.04.008
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    2. Han, Yufeng & Hu, Ou & Huang, Zhaodan, 2023. "A tale of idiosyncratic volatility and illiquidity shocks: Their correlation and effects on stock returns," International Review of Financial Analysis, Elsevier, vol. 86(C).
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    4. Tissaoui, Kais & Hkiri, Besma & Talbi, Mariem & Alghassab, Waleed & Alfreahat, Khaled Issa, 2021. "Market volatility and illiquidity during the COVID-19 outbreak: Evidence from the Saudi stock exchange through the wavelet coherence approaches," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    5. Sandra Ferreruela & Daniel Martín, 2022. "Market Quality and Short-Selling Ban during the COVID-19 Pandemic: A High-Frequency Data Approach," JRFM, MDPI, vol. 15(7), pages 1-29, July.
    6. Suhendra . & Etty Murwaningsari, 2019. "The Effect of Accounting Information and Tax Information on Trading Value Moderated by Competitive Strategy," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 6(2), pages 43-50.
    7. Goutam Sutar & Krantiraditya Dhalmahapatra & Sayan Chakraborty, 2023. "Impact of India’s Demonetization Episode on its Equity Markets," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(4), pages 649-675, December.
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    More about this item

    Keywords

    Market volatility; Liquidity; Returns; International stock markets;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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