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Boumediene Souiki and Françoise Seyte
''Liquidity on Eurozone stock markets: A non-linear approach''
( 2024, Vol. 44 No.1 )
The purpose of this paper is to study the relationship between liquidity and returns in the main European stock markets for the period of January 2005- December 2020. Asset liquidity is measured by three correlated indicators (ROLL, CS and HL). The methodology adopted consists of constructing threshold autoregressive model (TAR) for market returns while using liquidity indicators as a transition variable. The distinction between the different regimes helps clarify the relationship between these variables. The results show that the detected thresholds are different depending on the stock market. We then find that the impact of the liquidity indicator on returns is different for regime 1 and regime 2, and we propose an economic explanation for this difference.
Keywords: Liquidity risk, Market risk, TAR model, Nonlinear model.
JEL: Y1 - Special Issue in Honor of Michel Terraza
C1 - Econometric and Statistical Methods: General
Manuscript Received : Nov 18 2021 Manuscript Accepted : Mar 30 2024

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