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Closer View at the Stock Market Liquidity: A Literature Review

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  • Gaurav Kumar
  • Arun Kumar Misra

Abstract

Liquidity is said to be the lifeblood of stock markets. It has prominent implications for traders, regulators, stock exchanges and the listed firms. In recent years a huge amount of literature has emerged that deals with liquidity. This article classifies and organises the literature and provides a critical review of the frameworks currently available for modelling liquidity and its macroeconomic and firm specific drivers. Commonality and intraday behaviour of liquidity in various markets is discussed under the umbrella of market microstructures. Subsequently, liquidity risk as a factor in Asset pricing is analysed taking various models in to consideration. Finally, the study reviewed the impact of liquidity on corporate finance decisions viz. dividends, firm valuation, stock split, capital structure etc.

Suggested Citation

  • Gaurav Kumar & Arun Kumar Misra, 2015. "Closer View at the Stock Market Liquidity: A Literature Review," Asian Journal of Finance & Accounting, Macrothink Institute, vol. 7(2), pages 3557-3557, December.
    • Handle: RePEc:mth:ajfa88:v:7:y:2015:i:2:p:3557
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    References listed on IDEAS

    as
    1. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2007. "Liquidity and Expected Returns: Lessons from Emerging Markets," The Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 1783-1831, November.
    2. Daniel Chai & Robert Faff & Philip Gharghori, 2013. "Liquidity in asset pricing: New Australian evidence using low-frequency data," Australian Journal of Management, Australian School of Business, vol. 38(2), pages 375-400, August.
    3. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    4. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
    5. Joel Fabre & Alex Frino, 2004. "Commonality in liquidity: Evidence from the Australian Stock Exchange," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 44(3), pages 357-368, November.
    6. Martinez, Miguel A. & Nieto, Belen & Rubio, Gonzalo & Tapia, Mikel, 2005. "Asset pricing and systematic liquidity risk: An empirical investigation of the Spanish stock market," International Review of Economics & Finance, Elsevier, vol. 14(1), pages 81-103.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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