Stock Market Liquidity and the Macroeconomy: Evidence from Japan

Author/Editor:

Woon Gyu Choi ; David Cook

Publication Date:

January 1, 2005

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

In a liquid financial market, investors are able to sell large blocks of assets without substantially changing the price. We document a steep drop in the liquidity of the Japanese stock market in the post-bubble period and a steep rise in liquidity risk. We find that, during Japan's deflationary period, firms with more liquid balance sheets were less exposed to stock market liquidity risk, while slowly growing firms were highly exposed to liquidity shocks. Also, aggregate liquidity had macroeconomic effects on aggregate demand through its effect on money demand.

Series:

Working Paper No. 2005/006

Subject:

Liquidity Liquidity indicators Liquidity risk Market capitalization Stock markets

English

Publication Date:

January 1, 2005

ISBN/ISSN:

9781451860252/1018-5941

Stock No:

WPIEA2005006

Pages:

28

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