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Liquidity Measuring of Financial Market in Western Balkan Region: The Case of Serbia

  • Jelena Minovic

    ()

    (Institute of Economic Sciences)

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    This paper presents theoretical and empirical studies on liquidity measuring of financial market in the Western Balkan region (the Serbian market). Liquidity itself is not observable and therefore, has to be proxies by different liquidity measures. The liquidity measures covered in this paper are: Bid-Ask Spread, Amivest’s measure, Amihud’s measure, Amihud’s based measure, zero-return proportion, and price pressure of non-trading. Market liquidity is a fundamental aspect of market development. In order integrate Serbian market into EU financial market, structural change is required. Serbian market belongs to frontier markets. One of the major requirements that this market transforms to emerging, and then to develop market is to improve its liquidity. For empirical analysis of Serbian market liquidity we use two measures: zero-return proportion and price pressure of non-trading as in Bekaert, Harvey, and Lundblad (2007), for the period: 2005-2009. Results of this paper showed that the Serbian market is extremely illiquid. It is just one of the key barriers that foreign investors face while investing in the Western Balkan region. Additionally, for whole the Serbian market, the most illiquid year was 2008, while the least illiquid year was 2007, according to the value of zero-return proportion. Particularly, in the post-crises period level of illiquidity increased for both BELEX indices.

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    This chapter was published in:
  • Stefan Bogdan Salej & Dejan Eric & Srdjan Redzepagic & Ivan Stosic (ed.), 2011. "Contemporary Issues in the Integration Processes of Western Balkan Countries in the European Union," Books, Institute of Economic Sciences, number conissue, Spring.
  • This item is provided by Institute of Economic Sciences in its series Book Chapters with number conissue-27.
    Handle: RePEc:ibg:chaptr:conissue-27
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    1. Yeyati, Eduardo Levy & Schmukler, Sergio L. & Van Horen, Neeltje, 2007. "Emerging market liquidity and crises," Policy Research Working Paper Series 4445, The World Bank.
    2. Eun, Cheol S. & Lee, Jinsoo, 2010. "Mean-variance convergence around the world," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 856-870, April.
    3. Lesmond, David A., 2005. "Liquidity of emerging markets," Journal of Financial Economics, Elsevier, vol. 77(2), pages 411-452, August.
    4. Acharya, Viral V & Pedersen, Lasse Heje, 2004. "Asset Pricing with Liquidity Risk," CEPR Discussion Papers 4718, C.E.P.R. Discussion Papers.
    5. 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.
    6. Lubos Pastor & Robert F. Stambaugh, 2001. "Liquidity Risk and Expected Stock Returns," NBER Working Papers 8462, National Bureau of Economic Research, Inc.
    7. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2007. "Liquidity and Expected Returns: Lessons from Emerging Markets," Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 1783-1831, November.
    8. Huberman, Gur & Halka, Dominika, 2001. "Systematic Liquidity," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(2), pages 161-78, Summer.
    9. Cajueiro, Daniel O & Tabak, Benjamin M, 2004. "The Hurst exponent over time: testing the assertion that emerging markets are becoming more efficient," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 336(3), pages 521-537.
    10. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2000. "Commonality in liquidity," Journal of Financial Economics, Elsevier, vol. 56(1), pages 3-28, April.
    11. Hasbrouck, Joel & Seppi, Duane J., 2001. "Common factors in prices, order flows, and liquidity," Journal of Financial Economics, Elsevier, vol. 59(3), pages 383-411, March.
    12. Tarun Chordia, 2001. "Market Liquidity and Trading Activity," Journal of Finance, American Finance Association, vol. 56(2), pages 501-530, 04.
    13. K. Rouwenhorst, 1998. "Local Return Factors and Turnover in Emerging Stock Markets," Yale School of Management Working Papers ysm97, Yale School of Management, revised 01 Mar 2001.
    14. Yakov Amihud & Haim Mendelson & Beni Lauterbach, 1997. "Market Microstructure and Securities Values: Evidence from the Tel Aviv Stock Exchange," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-004, New York University, Leonard N. Stern School of Business-.
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