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Different Aspects of Market Liquidity

Mehdiyev, Joshgun (2019) Different Aspects of Market Liquidity. PhD thesis, University of Essex.

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Abstract

This thesis presents three chapters examining different aspects of market liquidity. The first chapter explores whether investor sentiment has the power to forecast stock market liquidity. The chapter employs the Amihud (2002) illiquidity measure as a proxy for price-impact, the bid-ask spread as a transaction cost measure of liquidity, and the individual investor sentiment spread and the Baker and Wurgler (2006) sentiment index to represent investor sentiment. Analysing NYSE stocks from 1994 to 2015 over weekly and monthly out-of-sample forecast horizons, the study finds investor sentiment is a statistically significant predictor of stock market liquidity. The second chapter explores the so-called “presidential gap” in U.S monetary aggregates. By examining monthly data from 1959 to 2017, the study finds a positive and significant Democratic premium in the inflation adjusted growth rates of narrow money, broad money and the money multiplier. The Democratic premium remains statistically significant and economically meaningful in the M1 and M2 growth rates after controlling for autoregressive components and the distributed lags of the federal funds rate. Moreover, the chapter finds a partisan Fed chair is a statistically significant indicator to explain the presidential gap. Finally, the third chapter investigates the transmission of commodity prices to the illiquidity of 22 currencies relative to the U.S dollar. The chapter exploits a new monthly dataset of commodity terms of trade (CTOT) in a GVAR framework over the period between 01/1994 and 12/2016. On the supply side, illiquidity of the currencies of less developed economies experience a significant and persistent fall following a local CTOT shock. On the demand side, the study finds a negative and persistent effect of a local CTOT shock on the illiquidity of most currencies, excluding highly liquid currencies. Finally, illiquidity of the currencies that are considerably exposed to commodity exporting and the currencies of smaller economies are significantly influenced by common commodity price shocks.

Item Type: Thesis (PhD)
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Joshgun Mehdiyev
Date Deposited: 03 Jul 2019 08:34
Last Modified: 03 Jul 2019 08:34
URI: http://repository.essex.ac.uk/id/eprint/24930

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