Liquidity and Short-Run Predictability: Evidence from International Stock Markets  

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Abstract

This study investigates the determinants of short-run predictability in international stock markets, where predictability is defined as the accuracy of the best-combined daily forecasts. Contrary to popular belief, illiquid markets, characterized by high transaction costs and large price impact, are not necessarily highly predictable. Instead, markets with larger trading volume are more predictable, especially after the global financial crisis and in emerging markets. Those with larger market capitalization, steeper upward trends, and positively skewed returns are less predictable. Company financial strength has limited influence. During the COVID-19 pandemic the markets have become more predictable, with stronger price trends. Emerging markets are less predictable when relatively over- or undervalued.
Original languageEnglish
Article number100673
Number of pages17
JournalGlobal Finance Journal
Volume50
Early online date25 Sept 2021
DOIs
Publication statusPublished - Nov 2021

Keywords

  • COVID-19
  • Forecasting accuracy
  • Market efficiency
  • Price impact
  • Transaction costs

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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