Market Volatility and Corporate Investment on Stock Liquidity in Emerging Market
This study aims to determine the effect of corporate investment and market volatility on stock liquidity in the Emerging Market in 2011-2020. The sample consists of six emerging market countries based on the MSCI emerging market index classification. This study uses data from common stocks using a purposive sampling technique selected based on the classification of Griffin et al. (2010) and Baker, Stein, & Wurgler (2003). The data used is secondary data taken annually, obtained from the Thomson Reuters / Refinitiv datastream site, and processed using EGLS panel data regression. This study uses dummy variables to view data before and during the pandemic through historical data. The results show that there is a significant positive effect on corporate investment on stock liquidity. The result also showed a significant negative effect on market volatility on stock liquidity in the six sample countries of emerging markets. Partial testing shows the same results in most countries. However, in some countries, corporate investment and market volatility do not affect stock liquidity. There are findings that overall data in each country showed better results before the COVID-19 pandemic in 2011-2019 but in Korea showed better results in the 2020 Covid pandemic period.
Berk, J., Green, R. C., & Naik, V. (1999). Optimal investment, growth options, and security returns. Journal of Finance, 54, 1553–1607.
Chung, K.H., Chuwonganant, C., 2018. Market volatility and stock returns: the role of liquidity providers. J. Financ. Mark. 37, 17–34.
Dang et al. (2019). Stock liquidity and capital structure: International evidence, Cogent Economics & Finance.
Guégan, D., Hassani, B. and Zhao, X. (2013), Emerging Countries Sovereign Rating Adjustment using Market Information: Impact on Financial Institutions Investment Decisions, Academic Press, Oxford.
Hevia, C., & Neumeyer, A. (2020). A perfect storm: COVID-19 in emerging economies. International Development Policy Journal.
Jung, H., & Choi, S. (2021). The effects of employee stock ownership on stock liquidity: Evidence from the Korean market. The North American Journal of Economics and Finance.
Kang, Wang and Eom. (2017). Corporate investment and Stock Liquidity: Evidence on the price impact of trade," Review of Financial Economics, Elsevier, vol. 33(C), pages 1-11.
Kyle, A. (1985). Continuous auctions and insider trading. Econometrica, 53, 1315–1336.
Lang, M., Lins, K. V., & Maffett, M. (2012). Transparency, Liquidity, and Valuation: International Evidence on When Transparency Matters Most. Journal of Accounting Research.
Lesmond, D. A. (2005). Liquidity of Emerging Markets. Journal of Financial Economics.
Mamtha, D., & Srinivasan, K. S. (2015). Stock Market Volatility – Conceptual Perspective through Literature Survey. Mediterranean Journal of Social Sciences. https://doi.org/10.5901/mjss.2016.v7n1p208
MSCI. (2019).” https://www.msci.com/emerging-markets (25 Juni 2020).