Interdependence between Monetary Policy and Stock Liquidity: A Panel VAR Approach

Byomakesh Debata · Jitendra Mahakud

15 citations0/0 files storedMargin The Journal of Applied Economic Research

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Financial Markets and Investment Strategies Monetary Policy and Economic Impact Market Dynamics and Volatility

Abstract

This article examines the relationship between monetary policy and individual stock liquidity in an order-driven emerging stock market like India. This study considers stocks listed in National Stock Exchange of India (NSE) and continuously traded from April 2002 to March 2015. Considering the multiple dimensions of liquidity, this study uses five different liquidity proxies to capture the various facets of liquidity such as trading activity, price impact and transaction cost. An array of macroeconomic and firm-specific control variables are used while analysing the liquidity and monetary policy relationship. Econometric methods like panel vector autoregressive (VAR)–Granger causality test, impulse response functions and variance decomposition analysis have been employed to carry out this analysis. The empirical findings suggest that monetary policy significantly Granger-causes stock liquidity, and the expansionary monetary policy characterised by low interest rate and higher money supply is positively associated with individual stock liquidity in India. The impact of monetary policy on liquidity of individual stocks is more prominent during financial crisis. The findings of the present study have certain theoretical as well as practical implications. The market participants in equity market can improve the forecasting of liquidity of their investment portfolio by employing monetary policy along with individual asset’s characteristics. Regulators and policymakers may consider the cross-sectional relationship between stock liquidity and monetary policy as an important source of information for policy formulation and implementation. JEL Classification: E44, E51, G12

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 15 citations exist upstream.

References

1969Investigating Causal Relations by Econometric Models and Cross-spectral Methods 2003Testing for unit roots in heterogeneous panels 1981Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root 2002Unit root tests in panel data: asymptotic and finite-sample properties 2002Illiquidity and stock returns: cross-section and time-series effects 1985Continuous Auctions and Insider Trading 2003Liquidity Risk and Expected Stock Returns 2008Market Liquidity and Funding Liquidity

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.