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The information content of market liquidity: An empirical analysis of liquidity at the Oslo Stock Exchange?

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  • Johannes A. Skjeltorp

    ()
    (Norges Bank (Central Bank of Norway))

  • Bernt Arne Ødegaard

    (University of Stavanger and Norges Bank)

Abstract

We investigate the information content of aggregate stock market liquidity and ask whether it may be a useful realtime indicator, both for financial stress, and real economic activity in Norway. We describe the development in a set of liquidity proxies at the Oslo Stock Exchange (OSE) for the period 1980-2008, with particular focus on crisis period 2007 through 2008, showing how market liquidity and trading activity changed for the whole market as well as for individual industry sectors. We also evaluate the predictive power of market liquidity for economic growth both in-sample and out-of-sample.

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Bibliographic Info

Paper provided by Norges Bank in its series Working Paper with number 2009/26.

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Length: 30 pages
Date of creation: 25 Nov 2009
Date of revision:
Handle: RePEc:bno:worpap:2009_26

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Keywords: Liquidity; Business Cycles; Financial crisis; Economic Activity;

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  1. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
  2. Viral V. Acharya & Lasse Heje Pedersen, 2004. "Asset Pricing with Liquidity Risk," NBER Working Papers 10814, National Bureau of Economic Research, Inc.
  3. Gibson, Rajna & Mougeot, Nicolas, 2004. "The pricing of systematic liquidity risk: Empirical evidence from the US stock market," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 157-178, January.
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  6. repec:oup:rfinst:v:24:y:2011:i:11:p:3688-3730 is not listed on IDEAS
  7. Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, vol. 46(2), pages 555-76, June.
  8. Ben S. Bernanke, 1990. "On the predictive power of interest rates and interest rate spreads," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 51-68.
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  13. Vassalou, Maria, 2003. "News related to future GDP growth as a risk factor in equity returns," Journal of Financial Economics, Elsevier, vol. 68(1), pages 47-73, April.
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  17. McCracken, Michael W., 2007. "Asymptotics for out of sample tests of Granger causality," Journal of Econometrics, Elsevier, vol. 140(2), pages 719-752, October.
  18. Goyenko, Ruslan Y. & Holden, Craig W. & Trzcinka, Charles A., 2009. "Do liquidity measures measure liquidity?," Journal of Financial Economics, Elsevier, vol. 92(2), pages 153-181, May.
  19. Fama, Eugene F, 1990. " Stock Returns, Expected Returns, and Real Activity," Journal of Finance, American Finance Association, vol. 45(4), pages 1089-1108, September.
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Cited by:
  1. Florackis, Chris & Kostakis, Alexandros & Kontonikas, Alexandros, 2011. "Transmission of macro-liquidity shocks to liquidity-sorted stock portfolios’ returns: The role of the financial crisis," SIRE Discussion Papers 2011-31, Scottish Institute for Research in Economics (SIRE).

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