Stock Market Liquidity and the Macroeconomy: Evidence from Japan
January 1, 2005
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Summary
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.
Subject: Liquidity, Liquidity indicators, Liquidity risk, Market capitalization, Stock markets
Keywords: liquidity shock, market liquidity, WP
Pages:
28
Volume:
2005
DOI:
Issue:
006
Series:
Working Paper No. 2005/006
Stock No:
WPIEA2005006
ISBN:
9781451860252
ISSN:
1018-5941
