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Stock market and its liquidity: Evidence from ARDL bound testing approach in the Indian context

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  • Sharad Nath Bhattacharya
  • Mousumi Bhattacharya
  • Sankarshan Basu

Abstract

This paper attempts to capture the relationship between stock market movements and its endogenous liquidity measures using Autoregressive Distributed-lag (ARDL) Bounds Testing Approach. We consider depth, breadth, tightness, immediacy and resiliency dimensions of market liquidity using suitable liquidity measures (proxies). Findings suggest that multidimensional liquidity measures like the volume of trade, spread, market efficiency coefficient, turnover rate, trading probability, and the stock market index are in a long-term relationship. While trading activity and market efficiency coefficient affect stock market positively, the negative impact is seen in the case of spread. The liquidity measures affect the stock market in the short run as well. We find that impact of the turnover rate on the stock market is negative in short-run but positive in the long-run. The findings are important for investors and the market participants as well who pursue loss minimization strategies. The results indicate that short-term policy interventions need not get more important than the long-term objectives of market reforms.

Suggested Citation

  • Sharad Nath Bhattacharya & Mousumi Bhattacharya & Sankarshan Basu, 2019. "Stock market and its liquidity: Evidence from ARDL bound testing approach in the Indian context," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1586297-158, January.
    • Handle: RePEc:taf:oaefxx:v:7:y:2019:i:1:p:1586297
    DOI: 10.1080/23322039.2019.1586297
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    Cited by:

    1. Asif Ali & Habib Ur Rahman & Adam Arian & John Sands, 2023. "Flight-to-Liquidity and Excess Stock Return: Empirical Evidence from a Dynamic Panel Model," JRFM, MDPI, vol. 16(12), pages 1-16, December.
    2. Díaz, Antonio & Escribano, Ana, 2020. "Measuring the multi-faceted dimension of liquidity in financial markets: A literature review," Research in International Business and Finance, Elsevier, vol. 51(C).
    3. Priyanka Naik & B G Poornima & Y V Reddy, 2020. "Measuring liquidity in Indian stock market: A dimensional perspective," PLOS ONE, Public Library of Science, vol. 15(9), pages 1-17, September.
    4. Olfa Berrich & Halim Dabbou, 2023. "Tunisian corporate bond market liquidity: a qualitative approach," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 15(5), pages 795-819, February.
    5. Samuel Tabot Enow, 2023. "Stock Market Liquidity during Periods of Distress and its Implications: Evidence from International Financial Markets," International Journal of Economics and Financial Issues, Econjournals, vol. 13(1), pages 1-6, January.
    6. Mousumi Bhattacharya & Sharad Nath Bhattacharya & Sumit Kumar Jha, 2022. "Does time-varying illiquidity matter for the Indian stock market? Evidence from high-frequency data," Australian Journal of Management, Australian School of Business, vol. 47(2), pages 251-272, May.
    7. Sumit Kumar Maji & Arindam Laha & Debasish Sur, 2020. "Dynamic Nexuses between Macroeconomic Variables and Sectoral Stock Indices: Reflection from Indian Manufacturing Industry," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 45(3), pages 239-269, August.

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