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Market volatility, liquidity shocks, and stock returns: Worldwide evidence

Rui Ma, Hamish Anderson and Ben Marshall

Pacific-Basin Finance Journal, 2018, vol. 49, issue C, 164-199

Abstract: We examine the interaction between market volatility, liquidity shocks, and stock returns in 41 countries over the period 1990–2015. We find liquidity is an important channel through which market volatility affects stock returns in international markets and we show this is distinct from the direct volatility–return relation. The influence of the liquidity channel on the link between market volatility and returns is stronger in markets exhibiting higher levels of market volatility and lower trading volume. It is also stronger in countries with better governance, no short-selling constraints, and more high-frequency trading and during crisis periods.

Keywords: Market volatility; Liquidity; Returns; International stock markets (search for similar items in EconPapers)
JEL-codes: G12 G15 G18 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:pacfin:v:49:y:2018:i:c:p:164-199