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Who moved my liquidity? Liquidity evaporation in emerging markets in periods of financial uncertainty

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  • Múnera, Daimer J.
  • Agudelo, Diego A.

Abstract

We investigate the role of different types of investors, foreigners, institutions, and individuals on the loss of liquidity in seven emerging markets during periods of global financial uncertainty from 2008 to 2016. We find that net sales from foreigners are the main driver of liquidity loss. Using TAQ data from one market, we find that active sales of foreigners erode liquidity, whereas some individuals act as the liquidity providers of last resort. We find no consistent role for institutions. These results highlight the importance of retail investors as liquidity providers in markets without designated market makers.

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  • Múnera, Daimer J. & Agudelo, Diego A., 2022. "Who moved my liquidity? Liquidity evaporation in emerging markets in periods of financial uncertainty," Journal of International Money and Finance, Elsevier, vol. 129(C).
    • Handle: RePEc:eee:jimfin:v:129:y:2022:i:c:s0261560622001267
    DOI: 10.1016/j.jimonfin.2022.102723
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    1. Agudelo, Diego A. & Múnera, Daimer J., 2023. "Who are the vectors of contagion? Evidence from emerging markets," International Review of Financial Analysis, Elsevier, vol. 87(C).

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    More about this item

    Keywords

    Financial uncertainty; Foreign investors; Individual investors; Liquidity; Net buys; Order imbalances;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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