The determinants of securities trading activity: evidence from four European equity markets

Silvio John Camilleri and Francelle Galea

Journal of Capital Markets Studies, 2019, vol. 3, issue 1, 47-67

Abstract: Purpose - The purpose of this paper is to obtain new empirical evidence about the connections between equity trading activity and five possible liquidity determinants: market capitalisation, dividend yield, earnings yield, company growth and the distinction between recently listed firms as opposed to more established ones. Design/methodology/approach - The authors use a sample of 172 stocks from four European markets and estimate models using the entire sample data and different sub-samples to check the relative importance of the above determinants. The authors also conduct a factor analysis to re-classify the variables into a more succinct framework. Findings - The evidence suggests that market capitalisation is the most important trading activity determinant, and the number of years listed ranks thereafter. Research limitations/implications - The positive relation between trading activity and market capitalisation is in line with prior literature, while the findings relating to the other determinants offer further empirical evidence which is a worthy addition in view of the contradictory results in prior research. Practical implications - This study is of relevance to practitioners who would like to understand the cross-sectional variation in stock liquidity at a more detailed level. Originality/value - The originality of the paper rests on two important grounds: the authors focus on trading turnover rather than on other liquidity proxies, since the former is accepted as an important determinant of the liquidity-generation process, and the authors adopt a rigorous approach towards checking the robustness of the results by considering various sub-sample configurations.

Keywords: Dividend yield; European equity markets; Factor analysis; Liquidity; Liquidity determinants; Market capitalisation; Newly established firms; Securities markets; Trading activity; G10; G12; G15 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jcmspp:jcms-02-2019-0007

DOI: 10.1108/JCMS-02-2019-0007

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