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Liquidity Synchronization, Its Determinants and Outcomes under Economic Growth Volatility: Evidence from Emerging Asian Economies

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  • Syeda Hina Zaidi

    (Department of Management Sciences, Capital University of Science and Technology, Islamabad PK-44000, Pakistan)

  • Ramona Rupeika-Apoga

    (Faculty of Business, Ecinomics and Managament, University of Latvia, LV-1059 Riga, Latvia)

Abstract

This study investigates the country-level determinants of liquidity synchronization and degrees of liquidity synchronization during economic growth volatility. As a non-diversifiable risk factor, liquidity co-movement shock spreads market-wide and thus disrupts the overall functioning of the financial market. Firms in Asian markets operate in legal and regulatory environments distinct from those of firms analyzed in the previous literature. Comprehensive analyses of liquidity synchronicity in emerging markets are limited. A major knowledge gap pertaining to Asian emerging markets serves as the primary motivation for this study. Seven Asian emerging economies are selected from the MSCI emerging market index: Bangladesh, China, India, Indonesia, Malaysia, Pakistan and the Philippines for analysis from 2010 to 2019. The empirical findings show high levels of liquidity synchronicity in weaker economic and financial environments with low GDP growth, high inflation and interest rates and underdeveloped financial systems taking the form of low levels of private credit. Liquidity synchronicity is also affected by poor investor protection, political instability, weak rule of law and government ineffectiveness. Moreover, levels of liquidity synchronicity are higher in a period of economic growth volatility.

Suggested Citation

  • Syeda Hina Zaidi & Ramona Rupeika-Apoga, 2021. "Liquidity Synchronization, Its Determinants and Outcomes under Economic Growth Volatility: Evidence from Emerging Asian Economies," Risks, MDPI, vol. 9(2), pages 1-20, February.
    • Handle: RePEc:gam:jrisks:v:9:y:2021:i:2:p:43-:d:502872
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    Cited by:

    1. Syeda Hina Zaidi & Nousheen Tariq Bhutta, 2021. "Liquidity Synchronization and Asset Valuation in Selected Emerging Asian Economies," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(6), pages 488-500.
    2. Jean-Pierre Gueyie & Mouhamadou Saliou Diallo & Mamadou Fadel Diallo, 2022. "Relationship between Stock Returns and Trading Volume at the Bourse Régionale des Valeurs Mobilières, West Africa," IJFS, MDPI, vol. 10(4), pages 1-16, December.
    3. Ramona Rupeika-Apoga & Stefan Wendt, 2022. "FinTech Development and Regulatory Scrutiny: A Contradiction? The Case of Latvia," Risks, MDPI, vol. 10(9), pages 1-13, August.
    4. Mohit Garg & Shelly Singhal & Kiran Sood & Ramona Rupeika-Apoga & Simon Grima, 2023. "Price Discovery Mechanism and Volatility Spillover between National Agriculture Market and National Commodity and Derivatives Exchange: The Study of the Indian Agricultural Commodity Market," JRFM, MDPI, vol. 16(2), pages 1-22, January.
    5. Baljinder Kaur & Sood Kiran & Simon Grima & Ramona Rupeika-Apoga, 2021. "Digital Banking in Northern India: The Risks on Customer Satisfaction," Risks, MDPI, vol. 9(11), pages 1-18, November.

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