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Measuring liquidity in Indian stock market: A dimensional perspective

PloS one, 2020-09, Vol.15 (9), p.e0238718-e0238718 [Peer Reviewed Journal]

COPYRIGHT 2020 Public Library of Science ;COPYRIGHT 2020 Public Library of Science ;2020 Naik et al. This is an open access article distributed under the terms of the Creative Commons Attribution License: http://creativecommons.org/licenses/by/4.0/ (the “License”), which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License. ;2020 Naik et al 2020 Naik et al ;ISSN: 1932-6203 ;EISSN: 1932-6203 ;DOI: 10.1371/journal.pone.0238718 ;PMID: 32886708

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  • Title:
    Measuring liquidity in Indian stock market: A dimensional perspective
  • Author: Naik, Priyanka ; Poornima, B. G ; Reddy, Y. V ; Trinidad Segovia, J E
  • Trinidad Segovia, J E.
  • Subjects: Analysis ; Autoregressive models ; Empirical analysis ; Equity ; Financial markets ; Liquidity ; Liquidity (Finance) ; Market prices ; Marketability ; Measurement ; People and Places ; Physical Sciences ; Regression analysis ; Regulators ; Securities markets ; Security ; Security management ; Social Sciences ; Stock exchanges ; Stock markets ; Stock-exchange ; Stocks ; Tightness
  • Is Part Of: PloS one, 2020-09, Vol.15 (9), p.e0238718-e0238718
  • Description: Market liquidity ensures the marketability of security and is an indispensable feature of stock markets. Previous studies have emphasized the role of stock market liquidity in empirical finance. However, they have inadequately explored its multidimensional nature. This study eliminates the ambiguities related to market liquidity by precisely measuring it by using popular and proven liquidity measures. As such, the present study aims to evaluate market liquidity in terms of depth, breadth, tightness, and immediacy in the Indian equity market and also identifies crucial interdependencies between liquidity dimensions. The study selects 500 stocks constituting the NIFTY 500 index of the National Stock Exchange, India, as of 26th May 2019. The data on trading volume, bid price, ask price, the number of shares outstanding, closing share prices were retrieved for the period from 1st April 2009 to 31st March 2019. The study employs Share Turnover, Amihud Illiquidity Ratio, Relative Quoted Spreads, and Coefficient of Elasticity of Trading for liquidity measurement. The Vector Auto-Regressive (VAR) model is used to establish the simultaneous relationships between liquidity dimensions. The analysis is conducted at the aggregate market level as well as across turnover based stock groups divided based on their rankings in terms of stock specific share turnover. The empirical results evidenced the presence of consistent depth, strong breadth, and immediacy but lower tightness in the Indian equity market. The market depth and tightness appear to be relevant in determining dimensional interdependencies. Also, less frequently traded stocks exhibit higher illiquidity in the wake of lower tightness. The findings of this study will assist the investors to wisely understand the multifaceted nature of market liquidity and base their trading decisions accordingly. Moreover, the regulators of the stock exchange can devise liquidity enhancing policies based on the directional movements among liquidity dimensions.
  • Publisher: San Francisco: Public Library of Science
  • Language: English
  • Identifier: ISSN: 1932-6203
    EISSN: 1932-6203
    DOI: 10.1371/journal.pone.0238718
    PMID: 32886708
  • Source: PubMed (Medline)
    Geneva Foundation Free Medical Journals at publisher websites
    Public Library of Science
    ProQuest Central
    Directory of Open Access Journals: DOAJ
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