Economic policy uncertainty and stock market liquidity

Economic policy uncertainty and stock market liquidity PurposeThis study aims to examine the relationship between economic policy uncertainty and stock market liquidity in an order-driven emerging stock market.Design/methodology/approachEmpirical estimates are based on vector autoregressive Granger-causality tests, impulse response functions and variance decomposition analysis.FindingsThe empirical findings suggest that economic policy uncertainty moderately influences stock market liquidity during normal market conditions. However, the role of economic policy uncertainty for determining stock market liquidity is significant in times of financial crises. The authors have also observed a significant portion of variation in stock market liquidity that is attributed to investor sentiments during financial crises.Originality/valueThis study is original in nature and provides evidence to consider economic policy uncertainty as a possible source of commonality in liquidity in the context of an emerging market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economic Policy Emerald Publishing

Economic policy uncertainty and stock market liquidity

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Publisher
Emerald Group Publishing Limited
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1757-6385
D.O.I.
10.1108/JFEP-09-2017-0088
Publisher site
See Article on Publisher Site

Abstract

PurposeThis study aims to examine the relationship between economic policy uncertainty and stock market liquidity in an order-driven emerging stock market.Design/methodology/approachEmpirical estimates are based on vector autoregressive Granger-causality tests, impulse response functions and variance decomposition analysis.FindingsThe empirical findings suggest that economic policy uncertainty moderately influences stock market liquidity during normal market conditions. However, the role of economic policy uncertainty for determining stock market liquidity is significant in times of financial crises. The authors have also observed a significant portion of variation in stock market liquidity that is attributed to investor sentiments during financial crises.Originality/valueThis study is original in nature and provides evidence to consider economic policy uncertainty as a possible source of commonality in liquidity in the context of an emerging market.

Journal

Journal of Financial Economic PolicyEmerald Publishing

Published: Apr 3, 2018

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