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

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  • Skjeltorp, Johannes

    (Norges Bank)

  • Ødegaard, Bernt Arne

    () (University of Stavanger)

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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File URL: http://www1.uis.no/ansatt/odegaard/uis_wps_econ_fin/uis_wps_2009_35_skjeltorp_odegaard.pdf
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Bibliographic Info

Paper provided by University of Stavanger in its series UiS Working Papers in Economics and Finance with number 2009/35.

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Length: 31 pages
Date of creation: 03 Dec 2009
Date of revision:
Handle: RePEc:hhs:stavef:2009_035

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Postal: University of Stavanger, NO-4036 Stavanger, Norway
Web page: http://www.uis.no/research/economics_and_finance
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Keywords: Liquidity; Business Cycles; Financial crisis; Economic Activity;

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  1. Acharya, Viral V & Pedersen, Lasse Heje, 2004. "Asset Pricing with Liquidity Risk," CEPR Discussion Papers 4718, C.E.P.R. Discussion Papers.
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  5. Goyenko, Ruslan Y. & Ukhov, Andrey D., 2009. "Stock and Bond Market Liquidity: A Long-Run Empirical Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(01), pages 189-212, February.
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  7. 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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  13. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
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  15. Alessandro Beber & Michael W. Brandt & Kenneth A. Kavajecz, 0. "What Does Equity Sector Orderflow Tell Us About the Economy?," Review of Financial Studies, Society for Financial Studies, vol. 24(11), pages 3688-3730.
  16. 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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