New evidence on the relation between stock liquidity and measures of trading activity

Daniel Chai, Robert Faff*, Philip Gharghori

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

31 Citations (Scopus)

Abstract

The goal of this paper is to examine two empirical issues regarding stock liquidity: (1) to what degree are different liquidity proxies correlated? and (2) how are different liquidity proxies related to stocks' trading characteristics? Answers to these questions will help us better understand whether there are common sources of liquidity. This has considerable implications for studying stock liquidity, since selecting an appropriate proxy for liquidity is an important issue in empirical research design. Using data from the Australian equity market, our results confirm prior research that stocks' trading characteristics are important determinants of liquidity. Though the relationships are generally consistent with expectations, some proxies do react differently to certain trading characteristics. This finding is consistent with the contention that liquidity is a multifaceted concept and each alternative proxy may only capture a certain aspect of liquidity.

Original languageEnglish
Pages (from-to)181-192
Number of pages12
JournalInternational Review of Financial Analysis
Volume19
Issue number3
DOIs
Publication statusPublished - Jun 2010
Externally publishedYes

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