Stock Market Liquidity and the Macroeconomy: Evidence from Japan

January 1, 2005

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Format: Chicago

Woon Gyu Choi, and David Cook. Stock Market Liquidity and the Macroeconomy: Evidence from Japan, (USA: International Monetary Fund, 2005) accessed November 21, 2024

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.

Subject: Liquidity, Liquidity indicators, Liquidity risk, Market capitalization, Stock markets

Keywords: Liquidity shock, Market liquidity, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/006
Stock No:

WPIEA2005006
ISBN:

9781451860252
ISSN:

1018-5941

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