The Determinants of Securities Trading Activity: Evidence from Four European Equity Markets
23 Pages Posted: 22 Jul 2019
Date Written: July 20, 2019
The main objective of this study is to obtain new empirical evidence about the connections between equity trading activity and five possible liquidity determinants: market capitalisation, dividend yield, earnings yield, company growth, and the distinction between recently-listed firms as opposed to more established ones.
Design / Methodology / Approach
We use a sample of 172 stocks from four European markets and estimate models using the entire sample data and different sub-samples to check the relative importance of the above determinants. We also conduct a factor analysis to re-classify the variables into a more succinct framework.
The evidence suggests that market capitalisation is the most important trading activity determinant, and the number of years listed ranks thereafter.
Research limitations / implications
The positive relation between trading activity and market capitalisation is in line with prior literature, while the findings relating to the other determinants offer further empirical evidence which is a worthy addition in view of the contradictory results in prior research.
This study is of relevance to practitioners who would like to understand the cross-sectional variation in stock liquidity at a more detailed level.
Originality / value
The originality of the paper rests on two important grounds: (a) we focus on trading turnover rather than on other liquidity proxies, since the former is accepted as an important determinant of the liquidity generation process, and (b) we adopt a rigorous approach towards checking the robustness of the results by considering various sub-sample configurations.
Keywords: Dividend yield, European equity markets, Factor analysis, Liquidity, Liquidity determinants, Market capitalisation, Newly established firms, Securities markets, Trading activity
JEL Classification: G10, G12, G15
Suggested Citation: Suggested Citation