Bidirectional Relationship between Stock Market Decline and Liquidity: A Study of Emerged & Emerging Economies

This study intends to examine the nature & direction of relationship between stock market movements, particularly decline, and its liquidity in 14 selected emerged emerging economies (G8+5 Pakistan) for January 2001 through December 2017 by applying Autoregressive Distributed Lag (ARDL) Bounds test Granger-causality test. Trading value turn over ratio are employed measure liquidity. Results trading highlight evidence no causality Germany India. Bi-directional exists Pakistan only. Uni-directional subsists only Russia at 10% significance level from return. However, return value, results demonstrate presence uni-directional 5% Brazil, Japan. Canada, China, France, Italy, UK, USA, South Africa Mexico. Negative returns used represent notion decline. The exhibited both proxies that two-way association decline long term. Thus co-integration long-run is suggested ARDL bounds 1% all countries sample.