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

Apergis, Nicholas, Artikis, Panagiotis and Kyriazis, Dimitrios (2015) Does stock market liquidity explain real economic activity? New evidence from two large European stock markets. Journal of International Financial Markets Institutions & Money, 38. pp. 42-64. ISSN 1042-4431

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Official URL: http://dx.doi.org/10.1016/j.intfin.2015.05.002

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.

Item Type: Article
Uncontrolled Keywords: stock market liquidity, economic conditions, UK market, Germany market
Subjects: L100 Economics
N300 Finance
Department: Faculties > Business and Law > Newcastle Business School > Accounting and Finance
Depositing User: Ay Okpokam
Date Deposited: 27 Jul 2015 15:27
Last Modified: 14 Sep 2015 13:57
URI: http://nrl.northumbria.ac.uk/id/eprint/23441

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