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Stock market liquidity and economic cycles: A non-linear approach

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  • Switzer, Lorne N.
  • Picard, Alan

Abstract

This paper examines the relationship between business cycles and market wide liquidity using a non-linear approach to capture the dynamics of macroeconomic time series. Applying both the Markov switching-regime and the smooth-transition autoregressive models and various proxies for liquidity, this study presents weak evidence that liquidity fundamentals act as leading indicators of future economic conditions. Whether stock market aggregate liquidity can be exploited to predict the future state of the economy remains an open question.

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  • Switzer, Lorne N. & Picard, Alan, 2016. "Stock market liquidity and economic cycles: A non-linear approach," Economic Modelling, Elsevier, vol. 57(C), pages 106-119.
    • Handle: RePEc:eee:ecmode:v:57:y:2016:i:c:p:106-119
    DOI: 10.1016/j.econmod.2016.04.006
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    5. 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.
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    7. Saumya Ranjan Dash & Debasish Maitra & Byomakesh Debata & Jitendra Mahakud, 2021. "Economic policy uncertainty and stock market liquidity: Evidence from G7 countries," International Review of Finance, International Review of Finance Ltd., vol. 21(2), pages 611-626, June.
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    9. Edward Alabie Borteye & Williams Kwasi Peprah, 2022. "Correlates of Stock Market Development and Economic Growth: A Confirmatory Study from Ghana," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(3), pages 1-1, February.
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    More about this item

    Keywords

    Liquidity; Business cycles; Regime shifts;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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