Stock Market Liquidity and the Macroeconomy

Stock Market Liquidity and the Macroeconomy

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In a liquid financial market, investors are able to sell large blocks of assets without substantially changing the price. We document a steep drop in the liquidity of the Japanese stock market in the post-bubble period and a steep rise in liquidity risk. We find that, during Japan''s deflationary period, firms with more liquid balance sheets were less exposed to stock market liquidity risk, while slowly growing firms were highly exposed to liquidity shocks. Also, aggregate liquidity had macroeconomic effects on aggregate demand through its effect on money demand.25 - APPENDIX I A. Stock Market Data Data on individual firmsa#39; returns are from the PACAP (Pacific Capital Markets) database. For each share in our sample, we use daily returns without dividends reinvested (PACAP mnemonic: DRETND)anbsp;...

Title:Stock Market Liquidity and the Macroeconomy
Author:Woon Gyu Choi, Mr. David Cook
Publisher:International Monetary Fund - 2005-01-01


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