10 Pages Posted: 1 Aug 2013 Last revised: 19 Aug 2013
Date Written: July 31, 2013
This study examines how aggregate corporate profit growth (CP) dynamically influences liquidity in the stock market using NYSE share turnover (STO) as a proxy. The VAR results from fitting quarterly data from 1951Q4 to 2012Q4 show that STO has a significant jump immediately in the first quarter following the shock to CP then drops and stays at the zero territory after the first quarter. The Granger-causality tests indicate that CP and STO Granger-cause each other. CP forecasts 3.5% to 4% of the STO variability at the two- and eight-quarter horizons, respectively.
Keywords: liquidity, liquidity shocks, share turnover, corporate profit growth
JEL Classification: G12, G14
Suggested Citation: Suggested Citation