Measuring Liquidity in Emerging Markets

45 Pages Posted: 17 Sep 2013

See all articles by Wenjin Kang

Wenjin Kang

Faculty of Business Administration, University of Macau

Huiping Zhang

James Cook University - College of Business, Law and Governance,

Date Written: September 12, 2013

Abstract

We propose a modified version of the Amihud illiquidity measure, AdjILLIQ, which performs well in different types of emerging markets. Our AdjILLIQ measure combines the virtues of the original Amihud ratio and the non-trading-frequency measure. It exhibits higher correlation with spread and price impact than other existing low-frequency liquidity measures in most of our sample markets. The improvement gained from using our AdjILLIQ measure is particularly significant in inactively-traded markets and low-turnover stocks. We find that the liquidity in emerging markets, as measured by AdjILLIQ, can be improved by better disclosure and less information asymmetry. Furthermore, the liquidity dry-up during market downturns can also be alleviated by better information environment.

Keywords: Liquidity measure, Emerging markets

JEL Classification: G19

Suggested Citation

Kang, Wenjin and Zhang, Huiping, Measuring Liquidity in Emerging Markets (September 12, 2013). Available at SSRN: https://ssrn.com/abstract=2326380 or http://dx.doi.org/10.2139/ssrn.2326380

Wenjin Kang

Faculty of Business Administration, University of Macau ( email )

Macau
Macau

Huiping Zhang (Contact Author)

James Cook University - College of Business, Law and Governance, ( email )

Singapore
Singapore

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