The diversification of multidimensional liquidity across stock markets

Trang Thi Thanh Chu and Trung Duc Nguyen

Asian Journal of Economics and Banking, 2026, vol. 10, issue 1, 2-28

Abstract: PurposeThis study aims to analyze the diverse relationships between liquidity measures in markets and then construct a multidimensional liquidity index (LI) for the stock market by systematically integrating multiple aspects of liquidity to enhance the explanatory power of liquidity comprehensively.Design/methodology/approachPrincipal component analysis is applied to construct a multidimensional LI from nine daily liquidity measures over the period 2010–2023.FindingsThe results reveal that developed markets (Germany, France and the UK) exhibit a more cohesive liquidity structure. In contrast, emerging markets like Poland and Portugal show a more fragmented liquidity composition. Across most markets, Bid-Ask, Roll and Amihud emerge as the dominant liquidity drivers, reinforcing their critical role in defining market liquidity, and Volume generally plays a secondary role, except in countries like Poland and Portugal, where it significantly influences first principal component, reflecting a greater dependence on trading intensity.Research limitations/implicationsPolicymakers can tailor liquidity mechanisms to market characteristics. In emerging markets, liquidity can be enhanced by reducing transaction taxes or providing incentives to institutional investors. In developed markets, regulators can consider improving trading infrastructure or promoting competition among market makers to optimize transaction costs. Investors or mutual fund managers should model market-specific liquidity by adjusting the weights of liquidity measures to reflect the structural differences of each market, thereby achieving more accurate assessments and improving investment decisions.Originality/valueThis study introduces a multidimensional LI and empirically highlighting structural liquidity differences between developed and emerging markets.

Keywords: Liquidity; Principal component analysis; Transaction cost; Stock market (search for similar items in EconPapers)
Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/ajeb/article/10/1/2/134420 ... imensional-liquidity (text/html)
https://www.emerald.com/ajeb/article-pdf/10/1/2/11258171/ajeb-09-2025-0113en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:ajebpp:ajeb-09-2025-0113

DOI: 10.1108/AJEB-09-2025-0113

Access Statistics for this article

Asian Journal of Economics and Banking is currently edited by Dr. Nguyen Ngoc Thach

More articles in Asian Journal of Economics and Banking from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().