Risk Perceptions and International Stock Market Liquidity

59 Pages Posted: 25 May 2016 Last revised: 27 May 2018

See all articles by Rui Ma

Rui Ma

La Trobe University - La Trobe Business School

Hamish D. Anderson

Massey University - School of Economics and Finance

Ben R. Marshall

Massey University - School of Economics and Finance

Date Written: May 23, 2018

Abstract

We show, using data for 57 countries over the 1990–2015 period, that investors’ risk perceptions are an important determinant of international stock market liquidity. Increased risk perception reduces liquidity around the world, and its impact is not subsumed by other well-documented market-level determinants of liquidity. The effect is pervasive, but is stronger in countries with higher GDP per capita, more trade openness, stronger governance, a more individualistic culture, and no short-selling constraints. It is not driven by periods of extreme changes in risk perception, expansionary or recessionary phases of the business cycle, or the way liquidity is measured.

Keywords: liquidity, international stock markets, risk perception, VIX

JEL Classification: G15, G18

Suggested Citation

Ma, Rui and Anderson, Hamish D. and Marshall, Ben R., Risk Perceptions and International Stock Market Liquidity (May 23, 2018). 29th Australasian Finance and Banking Conference 2016, Available at SSRN: https://ssrn.com/abstract=2784515 or http://dx.doi.org/10.2139/ssrn.2784515

Rui Ma (Contact Author)

La Trobe University - La Trobe Business School ( email )

Melbourne, 3086
Australia

Hamish D. Anderson

Massey University - School of Economics and Finance ( email )

New Zealand

Ben R. Marshall

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand
64 6 350 5799 (Phone)
64 6 350 5651 (Fax)

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