Market Volatility, Liquidity Shocks, and Stock Returns: Worldwide Evidence

56 Pages Posted: 13 Nov 2017 Last revised: 3 Feb 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: November 9, 2017

Abstract

We examine the interaction between market volatility, liquidity shocks, and stock returns in 41 countries over the period 1990–2015. We find liquidity is an important channel through which market volatility affects stock returns in international markets and we show this is distinct from the direct volatility–return relation. The influence of the liquidity channel on the link between market volatility and returns is stronger in markets exhibiting higher levels of market volatility and lower trading volume. It is also stronger in countries with better governance, no short-selling constraints, and more high-frequency trading and during crisis periods.

Keywords: market volatility, liquidity, returns, international stock markets

JEL Classification: G12, G15, G18

Suggested Citation

Ma, Rui and Anderson, Hamish D. and Marshall, Ben R., Market Volatility, Liquidity Shocks, and Stock Returns: Worldwide Evidence (November 9, 2017). 9th Conference on Financial Markets and Corporate Governance (FMCG) 2018, Available at SSRN: https://ssrn.com/abstract=3067801 or http://dx.doi.org/10.2139/ssrn.3067801

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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