The Determinants of Securities Trading Activity: Evidence from Four European Equity Markets

Abstract

Purpose-The purpose of this paper is to obtain new empirical evidence about the connections between equity trading activity and five possible liquidity determinants: market capitalisation, dividend yield, earnings yield, company growth and the distinction between recently listed firms as opposed to more established ones. Design/methodology/approach-The authors use a sample of 172 stocks from four European markets and estimate models using the entire sample data and different sub-samples to check the relative importance of the above determinants. The authors also conduct a factor analysis to reclassify the variables into a more succinct framework. Findings-The evidence suggests that market capitalisation is the most important trading activity determinant, and the number of years listed ranks thereafter. Research limitations/implications-The positive relation between trading activity and market capitalisation is in line with prior literature, while the findings relating to the other determinants offer further empirical evidence which is a worthy addition in view of the contradictory results in prior research. Practical implications-This study is of relevance to practitioners who would like to understand the cross-sectional variation in stock liquidity at a more detailed level. Originality/value-The originality of the paper rests on two important grounds: the authors focus on trading turnover rather than on other liquidity proxies, since the former is accepted as an important determinant of the liquidity-generation process, and the authors adopt a rigorous approach towards checking the robustness of the results by considering various sub-sample configurations.

Determinants of Stock Market Liquidity in Nigeria

“…Alnaif (2014) finds that firm size has a positive impact on stock liquidity proxies. Using market capitalization as a proxy for firm size, Camilleri and Galea (2019) contend that market capitalization is the factor that mostly explains the cross-sectional variation in trading activity. Several arguments have been advanced on the relationship between firm size and stock liquidity.…”

“…Contrarily, Madyan et al (2013) report that firm size has a negative effect on stock liquidity. Some studies report that profitability positively affects stock liquidity (Beaupain & Juliet, 2011;Camilleri & Galea, 2019). These studies argue that investors will readjust their portfolio in line with profitability as shareholders buy stocks with the intention of benefiting from the earnings of the firm.…”

“…Alnaif (2014) finds no significant effect between dividends and stock liquidity proxies. Studies have also shown that leverage has a negative impact on stock liquidity (Camilleri & Galea, 2019;Lesmond et al, 2008). These studies contend that as firms add more debt to their capital structure, information asymmetry is increased, and this ultimately increases cost of stock liquidity.…”