Study on the Liquidity Flow of Stock Market

Author

Mr. Kosuri Surya Satyanarayana,Mr. Raja Pavan Kumar


Abstract

 Stock market liquidity, the ability to buy or sell securities quickly, at low transaction cost and without materially moving prices, is a foundation of efficient price discovery, investor participation and financial stability. Prior research has examined liquidity measurement, liquidity risk, volatility, investor sentiment, monetary policy, financial crises and economic policy uncertainty, but the evidence is fragmented and concentrated in developed markets. This study develops an integrated framework in which perceived stock market liquidity is explained by market volatility, trading activity, investor sentiment, monetary policy and economic policy uncertainty (EPU).

A structured questionnaire using five-point Likert scales was administered to 200 investors (retail, high-net-worth and institutional) in the Indian equity market. Data were analysed in Microsoft Excel using descriptive statistics, a chi-square test of independence, one-way ANOVA and multiple linear regression. The chi-square test found no significant association between investor type and liquidity level (χ² = 0.610, df = 4, p = 0.962). One-way ANOVA showed that perceived liquidity differs significantly by investment experience (F(2, 197) = 6.709, p = 0.002, η² = 0.064), with investors having more than ten years of experience reporting the highest liquidity. The regression model was significant (F(5, 194) = 23.194, p < 0.001; R² = 0.374). Trading activity (β = 0.403), investor sentiment (β = 0.243) and supportive monetary policy (β = 0.236) were positively related to liquidity, whereas market volatility (β = −0.371) and EPU (β = −0.201) were negatively related. The results support the multidimensional view of liquidity and offer practical guidance for investors, regulators and policymakers in emerging markets.



Keywords

Stock Market Liquidity; Market Microstructure; Liquidity Risk; Liquidity Volatility; Trading Volume; Bid-Ask Spread; Investor Sentiment; Monetary Policy; Economic Policy Uncertainty



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