Macroeconomic Sources of Systematic Liquidity

50 Pages Posted: 4 Oct 2004

See all articles by Akiko Watanabe

Akiko Watanabe

University of Alberta - School of Business; University of Alberta - Department of Finance and Statistical Analysis

Date Written: September 14, 2004

Abstract

This paper examines macroeconomic sources of time-series variation in the U.S. stock market liquidity over the last four decades. The vector autoregression analyses show that macroeconomic fundamentals are significant determinants of liquidity and their effects are stronger prior to the mid 1980's when business cycle dynamics are more volatile. During the first half of the sample, liquidity improves substantially in response to negative shocks in the supply-side inflation and following expansionary monetary policy shocks. During the latter half of the sample, aggregate liquidity is less responsive and more resilient to both market-level and economy-wide shocks.

Keywords: Systematic liquidity, macroeconomic factors, vector autoregression

JEL Classification: G10

Suggested Citation

Watanabe, Akiko, Macroeconomic Sources of Systematic Liquidity (September 14, 2004). Available at SSRN: https://ssrn.com/abstract=598781 or http://dx.doi.org/10.2139/ssrn.598781

Akiko Watanabe (Contact Author)

University of Alberta - School of Business ( email )

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HOME PAGE: http://www.bus.ualberta.ca/awatanabe

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada

HOME PAGE: http://www.bus.ualberta.ca/awatanabe

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