Narrow Results

Trading in commodity derivatives on exchange platforms is an instrument to achieve price discovery and better price-risk management besides helping the macroeconomy with better resource allocation. In the 2008–2009 budget, the Indian government proposed to impose a commodity transaction tax (CTT) amounting to 0.017% of trading value. In this context, we examine the relationship between trading activity, volatility and transaction cost for five most traded commodities in India. Results suggest that there exists a negative relationship between transaction cost and liquidity and a positive relationship between transaction cost and volatility. Further, the results of structural model support the results of VAR analysis. Therefore, if the government imposes CTT, it would lead to higher volatility and lower trading activity affecting market efficiency and liquidity.

This paper investigates the link between stock market liquidity and firm value in an important emerging market, Vietnam. Specially, we examine this relationship using a sample of firms listed on the Ho Chi Minh City stock exchange for the period 2006–2014. We show that there is a negative relation between liquidity and firm value. This outcome is contrary to previous results for many developed countries. Further, we demonstrate that this result may be explained by differences in leverage effects and pricing-based theories, where stock liquidity influences firm performance via an illiquidity premium or mispricing.

A growing volume of studies indicate that the information asymmetry problem is a serious issue which significantly hinders stock market development. This problem is more pronounced in emerging markets with weak institutions. The domination of large shareholders in a firm might be a cause of information asymmetry because they are commonly believed to have access to private and value-relevant information. The current paper offers insight into the relationship between multiple large shareholder ownership and stock market information asymmetry in the context of Vietnam, an important emerging market. Employing fixed effects and GMM estimators for a panel data sample of firms listed on the Ho Chi Minh City stock exchange covering the period 2007–2015, the results suggest that the concentration of large shareholder ownership is positively and significantly associated with information asymmetry. This finding has strong implications for policy making process in promoting stock market development.

At the macro-level, whether US dollar (USD) spillover could sustain the prosperity and stability of international economic and financial systems should become a key basis for judging the rationality of the current USD standard international monetary system. As the main contributor to USD liquidity externalities, US Treasury securities have long been favored by major economies worldwide due to their perceived safety and reliability, and their yield should be a key indicator for measuring the effect of USD liquidity spillover and the rationality of the international monetary system. However, the discussion in previous studies concerning the efficiency of holding US Treasury securities on the microeconomic level is insufficient. This study considers the negative externality of asset allocation behavior when analyzing its rationality at the macro-level. According to the empirical results, we find a clear negative relationship between the efficiency and the risk of USD assets and the holding scale of USD foreign exchange reserves. This finding indicates the dilemma faced by major economies in managing international liquidity without a sound replacement for USD assets. We argue that the current USD standard monetary system needs to be reformed and diversified to optimize the benefit of liquidity holdings globally. An internationalized RMB could play a more important role on the global and regional stages in strengthening and reforming the current monetary ecosystem.

In view of the interaction between demand and supply shocks and the nature of the disparity in business cycles between Advanced Economies (AEs) and Emerging Market Economies (EMEs), we reinvigorate policy “silver bullets” that ascertain a sustainable growth revival in the aftermath of the COVID-19 shock. Using a novel business cycle dating algorithm, we identify up-cycle and down-cycle phases in India’s gross domestic product growth rate and use dynamic factor analysis using several high-frequency indicators for tracking private investment activity in India. On the demand side, our empirical results indicate that a boost to private investment can arrest a growth deceleration during a down-cycle, via consumption and output channels. We also observe that both the quantum and quality of public expenditure play an important role in arresting the growth deceleration. On the supply side, however, global supply chain disruptions could dampen the pace of investment during the post-COVID investment-led recovery. For both channels to work, credit offtake is necessary for a bank-dominated EME like India. Finally, despite low-capacity utilization rates, we draw several policy conclusions to jump-start economic activity levels.

Using data from the Taiwanese stock market, an emerging market, this paper documents positive changes in liquidity and volatility around seasoned equity offerings (SEOs). These findings are consistent with the uncertain signal hypothesis that investors with diverse views on the information content of SEOs are likely to induce larger trading activity and subsequent higher stock return volatility. We also provide direct evidence that changes in liquidity is positively associated with stock price adjustment. However, the relations among liquidity, volatility and price movements appear to rely on how SEOs are conducted. A practical implication is that managers may influence liquidity and stock price movement through their choice of SEOs issuing methods.

Estimation of benchmark yield curve in developing markets is often influenced by liquidity concentration. Based on an affine term structure model, we develop a long run liquidity weighted fitting method to address the trading concentration phenomenon arising from horizon-induced clientele equilibrium as well as information discovery. Specifically, we employ arguments from models of liquidity concentration and benchmark security information. After examining time series behavior of price errors against our fitted model, we find results consistent with both the horizon and information hypotheses. Our evidence indicates that trading liquidity carries information effect in the long run, which cannot be fully captured in the short run. Trading liquidity plays a key role in long run term structure fitting. Markets for liquid benchmark government bond issues collectively form a long term equilibrium. Compared with previous studies, our results provide a robust and realistic characterization of the spot rate term structure and related price forecasting over time, which in turn help portfolio investment of fixed income and long run pricing of financial instruments.

This paper demonstrates analytically how short sellers can put non-transitory downward pressure on the stock market prices and intrinsic values of companies that need to raise external capital because of insufficient internal liquidity. The model helps explain anomalous empirical findings in the extant literature on negative returns to stocks subjected to heavy shorting activity. The implications of the model also supply normative justification for the sizable cash reserves held by corporations and their reluctance to raise external capital. The equity pricing effects implied by the model are illustrated for a large empirical sample of companies negatively impacted by heavy short sales. Empirical tests are also conducted in this research that provide evidence consistent with the theory.

Previous studies have documented the informational role of order imbalances in price discovery of the Treasury market. In this paper, we explore the liquidity dimension of order imbalances. Through our research, we find evidence which indicates that order imbalances affect Treasury market liquidity. More importantly, order imbalances have significant effects on Treasury market returns and volatility, consistent with the contention that order imbalances can cause an inventory problem of marketwide concern. Results suggest that a significant portion of the effect of order imbalances on price and quoted spread is associated with the inventory premium that compensates market participants for providing liquidity to uninformed traders. The effects of order imbalances on market liquidity, returns and volatility are stronger for two- and five-year notes and Treasury bills. Furthermore, there is commonality in order imbalances. Sensitivity of order imbalances individual bonds to marketwide order imbalances varies across securities.

Research suggests that the cash ratios of private firms are lower than the ones of public firms, which is not consistent with an expectation for increased importance of the precautionary motive for firms with fewer funding options. The study provides a significant explanation on these lower ratios, attributed to differences in leverage, capital expenditures, internally generated cash flows, and corporate governance. The study finally testifies that excess cash holdings are positively associated with future operating performance for private, but not public firms, a finding which is interpreted as a manifestation of capital raising constraints for unlisted versus listed firms.

This paper investigates basis spreads on index futures listed on the Taiwan Futures Exchange. We analyze the role of speculators and of informed trading in Taiwan's futures market using intraday data during the five-day pre-expiration period. We demonstrate that liquidity, volatility, and informed trading are each significantly positively related to spread magnitude, indicating that speculators may dominate arbitrageurs. While spreads have narrowed as the market has matured, liquidity and informed trading continue to widen spreads despite the fact that a naïve arbitrage strategy outperforms the market.

This paper examines the relationship between liquidity and profitability of the non-financial firms listed in Dhaka Stock Exchange (DSE) for the period of 1998–2013. Pedroni and Johansen co-integration results show that liquidity, profitability, firm size and long-term debt (LTD) have significant co-integration relationship in the long run. The causality test results expose that a strong bidirectional casual relationship exist among the variables of liquidity and profitability, LTD and liquidity profitability and firm size in the short run. Also, there exists unidirectional causality among the variables of firm size and liquidity, profitability and LTD in the short run. Furthermore, Pooled Mean Group results show that profitability, firm size and LTD have long-run co-integration relationship with liquidity. However, in the short run, profitability and LTD significantly contribute to the liquidity and the error correction mechanism shows that speed of adjustment to equilibrium is significant within the year. Impulse response analysis indicates shocks in the firm size, LTD and profitability have positive and significant impact on liquidity.

We investigate the bid–ask bounce effect on estimation of idiosyncratic volatility (IVOL) from asset pricing perspective using a comprehensive country-specific sample. We find that the idiosyncratic volatility–return relationship remains significant while controlling for stock size. However, the explanatory power of IVOL disappears completely when stock liquidity is controlled for. These findings support our argument that the bid–ask bounce effect on pricing of IVOL is strongly influenced by stock liquidity. Our results indicate that mid-price is the “true” price to measure IVOL of the least liquid stocks in the Australian stock market.

The study examines an old but unique event from a new perspective and provides important insights to the financial literature. The result suggests that the competition from the later-launched iShares funds can improve pricing efficiency but decrease liquidity of the corresponding existing country funds. Furthermore, these effects are more profound for emerging country funds than for developed country funds.