Institute of Business and Management
|關鍵字:||流動性;景氣循環;安全性轉移;流動性轉移;機構法人持股;Liquidity;Business Cycle;Flight to Quality;Flight to Liquidity;Institutional Ownership|
Using a sample of the Taiwan Stock Exchange (TWSE) during 1982Q1-2012Q2, this paper provides comprehensive evidence on testing the relation between stock market liquidity and the business cycle. The Granger causality test shows that the TWSE market liquidity appears to predict the future state of the real economy, while the real economy cannot capture the variation of the market liquidity. Further, results of the time-series regressions indicate that after controlling for other well-known predictors of the business cycle, a decline (increase) in market liquidity in the previous quarter is still significantly related to an economic downturn (turnaround) in this quarter. Compared to large-cap stocks, the liquidity of small-cap stocks are more powerful in predicting future economic conditions, which is consistent with the expectation of flight-to-quality or flight-to-liquidity. Using the ownership by the TWSE’s three major institutional investors to capture the institutional market participation, we find that the institutional market participation contributes positively the TWSE market liquidity. By studying the case of the financial tsunami during 2008Q1-2010Q4, we also find that, on average, TWSE institutional investors tend to flee (enter) the stock market altogether during economic recessions (expansions). Due to binding stake constraints, TWSE mutual funds tend to shift their portfolios from small (large) to large (small) stocks during economic recessions (expansions). Overall, this paper contributes to literature by providing comprehensive evidence to confirm that Taiwan stock market liquidity indeed contains information about future real economic activity (especially for the liquidity of small stocks) and that the predictive ability of market liquidity for the economic growth is due, at least in part, to the dynamic in institutional market participation.
Journal of Management and Systems