Macroeconomic Conditions and Stock Market Liquidity in Kenya
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Date
2020-11
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Canadian Center of Science and Education
Abstract
This paper explores the role of macroeconomic conditions on systematic stock market liquidity in Kenya. The
study first estimates the monthly probability of liquidity switching from a high to a low liquidity state using the
Markov regime switching framework. Then, using ordinary least squares, the study identifies macro factors that
significantly drive liquidity fluctuations. Importantly, monetary policy changes, exchange rate fluctuations and
global risk aversion are found to significantly explain the resilience of stock market liquidity. Understanding the
specific macroeconomic variables that drive liquidity fluctuations helps investors to monitor their liquidity
exposures further enabling them to make informed investment choices. This ultimately leads to efficient resource
allocation. Additionally, the empirical findings of this study provide key information to financial market
supervisors regarding which macro variables to watch in their surveillance duties.
Description
Keywords
liquidity regimes, liquidity resilience, macroeconomic conditions
Citation
International Journal of Economics and Finance; Vol. 12, No. 12; 2020