Does stock market liquidity explain real economic activity? New evidence from two large European stock markets

Nicholas Apergis (), Panagiotis Artikis () and Dimitris Kyriazis ()

Journal of International Financial Markets, Institutions and Money, 2015, vol. 38, issue C, 42-64

Abstract: This paper examines the relationship between stock market liquidity, which proxies for the implicit cost of trading shares, with macroeconomic conditions. We provide evidence that stock market liquidity contains strong and robust information about the condition of the economy for both the UK and Germany in the presence of well-established leading indicators. Our findings exemplify the importance of small cap firms’ liquidity in explaining the state of the economy and support the “flight-to-quality argument”. Finally, the empirical findings show that there is not any differential role of liquidity in explaining the course of macroeconomic variables between a capital market and a bank-oriented economy.

Keywords: Stock market liquidity; Economic conditions; UK market; Germany market (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:38:y:2015:i:c:p:42-64

DOI: 10.1016/j.intfin.2015.05.002

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