Risk Perceptions and International Stock Market Liquidity

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: 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