On stock market illiquidity and real-time GDP growth

Florackis, Chris; Giorgioni, Gianluigi; Kostakis, Alexandros; Milas, Costas

doi:10.1016/j.jimonfin.2014.02.006

Cited by 36 publications

(33 citation statements)

References 38 publications

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“…19 However, the implications for uncertainty are sensitive to parameter values and the initial level of liquidity within the market. 20 Using absolute returns is also thought to be robust to outliers than volatility measures using squared returns (Florackis et al, 2014). We also estimate specifications using squared real returns; analysis results in the same conclusions to those we report herein.…”

Section: The Real Effects Of Uncertainty Shocksmentioning

confidence: 59%

“…There is an implicit relationship between asset market liquidity and asset price uncertainty. For example, Florackis et al (2014) note a negative correlation between stock market liquidity and volatility; particularly in a bear market. Also, Levine and Zervos (1998) stress that liquidity and uncertainty may possess an important relationship and provide an empirical investigation on the real effects of stock market liquidity and uncertainty.…”

Section: The Real Effects Of Uncertainty Shocksmentioning

confidence: 99%

“…In fact the majority of the literature concentrates on explanatory and forecasting performance (e.g. Naes et al (2011) and Florackis et al (2014)). The importance of understanding the dynamics of liquidity shocks and the real economy is twofold.…”

Section: Introductionmentioning

confidence: 99%

“…There are various reasons why liquidity conditions in stock and housing markets can affect the real economy. Stock market liquidity may behave as a signalling process uncovering the information set of investors (Florackis et al, 2014). In times of excess volatility or diminishing confidence regarding the future state of the economy, investors adjust portfolio holdings moving funds from high risk assets into 'safe havens' such as government debt or other short-term fixed income securities (flight to safety).…”

Section: Introductionmentioning

confidence: 99%

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Liquidity shocks and real GDP growth: Evidence from a Bayesian time-varying parameter VAR

Ellington

Florackis

Milas

2017

Journal of International Money and Finance

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We examine the dynamic impact of liquidity shocks resonating in stock and housing markets on real GDP growth. We fit a Bayesian time-varying parameter VAR model with stochastic volatility to US data from 1970 to 2014. GDP becomes highly sensitive to house market liquidity shocks as disruptions in the sector start to emerge, yet more resilient to stock market liquidity shocks throughout time. We provide substantial evidence in favour of asymmetric responses of GDP growth both across the business cycle, and among business cycle troughs. Stock and house market liquidity shocks explain, on average, 17% and 35% of the variation in GDP during the Great Recession, respectively.

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Section: The Real Effects Of Uncertainty Shocksmentioning

confidence: 59%

Section: The Real Effects Of Uncertainty Shocksmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Liquidity shocks and real GDP growth: Evidence from a Bayesian time-varying parameter VAR

Ellington

Florackis

Milas

2017

Journal of International Money and Finance

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“…Once this association is determined, a variety of studies can be conducted. For instance, if it is determined that the cycles are synchronized, one could forecast the dynamics of the Mexican business cycle using liquidity measures of the stock market as leading indicators, as in Florackis et al (2014). Description of the data and estimations follow.…”

Section: Section I Financial Markets and Economic Activitymentioning

confidence: 99%

Stock market development and economic performance: The case of Mexico

Ponce

Espinosa

Alfaro

2015

RAE

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Stock Market Liquidity Impact on Economic Development

Silva¹

2023

Rethinking Management and Economics in the New 20’s

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This work analyses the relationship between the stock market liquidity and the country's economic development, which has been object of interest of many researches lately. The stock market liquidity is considered to have a huge impact on a country's economic development. However, all the known studies focused on the economic growth as proxy for the economic development, instead of using a composition of various dimensions to explain the true economic development of a country.Therefore, the main aim of this work is to contribute to this branch of the literature by using the Human Development Index as proxy for the economic development. The stock market liquidity was calculated based on the Amihud's (2002) illiquidity measure, which is one of the most reliable measures of this area.This study was carried out based on a wide and diversified sample with 59 countries.The sample period is comprised between 1990 and 2015, with annual frequency data. Firstly, the correlations between the stock market liquidity and economic development are calculated for each country using the Spearman's non-parametric correlation test. Then, were applied the pooled OLS and fixed and random effects regression models, being the most suitable model then chosen through the F, Breusch-Pagan and Hausman tests. When analysed individually, most of the countries have a positive correlation coefficient between the stock market liquidity and economic development, which is consistent with the statistically significant positive relationship when analysing the global sample. Dividing the original sample by the level of economic development of the countries and by the period before and after the economic crisis of 2008, there are statistically significant changes in the impact of the stock market liquidity on the countries' economic development. Only the developing countries presented a statistically significant negative relationship between the two analysed dimensions, contrary to the initial expectations. Still, this result may be related to the greater difficulties in the transaction of assets, reducing liquidity and slowing down economic growth.

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On stock market illiquidity and real-time GDP growth

Cited by 36 publications

References 38 publications

Liquidity shocks and real GDP growth: Evidence from a Bayesian time-varying parameter VAR

Liquidity shocks and real GDP growth: Evidence from a Bayesian time-varying parameter VAR

Stock market development and economic performance: The case of Mexico

Stock Market Liquidity Impact on Economic Development

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