Consumer attitudes, stock market liquidity, and the macro economy: A Canadian perspective ¬リニ¬リニ¬リニ

a r t i c l e i n f o This study addresses the impact of equity market liquidity on Canadian economic growth and investigates how consumer attitudes/sentiments affect the dynamic macro-liquidity relationship. Using various market liquidity proxies (e.g., illiquidity ratio and open interest of equity futures) while controlling for a specific set of variables, we obtain the following main results: we document the predictability role of liquidity on future economic growth, and we find that during periods of high exchange-rate volatility between the Canadian and US dollars, growth becomes highly affected by stock-market liquidity movements. Furthermore, there is some evidence that stock market liquidity contains additional information for estimating the future state of the economy but is conditional on periods of higher positive consumer attitudes—specifically, consumer confidence in the economy. Additionally, we find strong evidence consistently supporting the premise that a positive change in general consumer sentiment exhibits a direct and significant effect on some macroeconomic variables including personal consumption, consumer credit, and economic growth. Does stock market liquidity explain economic growth? We investigate this relationship among stock market liquidity, economic growth, and some macroeconomic variables of Canada, taking into consideration consumer attitudes as well as the currency change between the Canadian and US dollars. 1 To address the interrelationships , we examine three major linked research questions. First, we research whether or not stock market liquidity can predict the Canadian macro-economy using various market liquidity proxies; second, we want to see if consumer attitudes in Canada exhibit an impact on the macro-economy; and third—ultimately— we want to see if consumer attitudes affect the dynamic relationship between economic growth and stock market liquidity (macro-liquidity relationship). Some studies have demonstrated a strong relation between stock market liquidity and the business cycle (e. We examine this relationship using seven liquidity proxies applied to a Canadian sample while taking into account the impact of the currency movement. Moreover, if we agree that fluctuation of the Canadian currency against the US dollar has an impact on the state of the Canadian economy, then we need to see how this movement influences the dynamic macro-liquidity relationship of the nation. ☆ The author is grateful to Professor B.M. Lucey (the Editor) and an anonymous referee for excellent suggestions and helpful comments. For valuable discussions, I also extend my thanks to the seminar participants at the 46th Annual Conference of the Canadian Economics Association (CEA). …