How does Stock Market Liquidity Forecast Economic Growth?

Jeongsim Kim


This paper examines the relationship between stock market liquidity and the real economy in Korea during the period 1995:2–2011:4. We find that stock market liquidity is positively and significantly correlated with future economic growth. Specifically, we find that the Amihud (2002) illiquidity measure is a good predictor of the next quarter’s real GDP growth. We also find that the illiquidity of small, young, non-dividend-paying, and distressed firms, which are more likely to be informationally opaque and difficult to arbitrage, is more informative when predicting future economic downturns. From the perspective of the flight to quality, the implication is that investors shift their portfolios toward safe assets when they expect the economy to be in trouble.

Keywords: Korean stock market, Economic development, Firm characteristics

Full Text: PDF
Download the IISTE publication guideline!

To list your conference here. Please contact the administrator of this platform.

Paper submission email:

ISSN (Paper)2222-1905 ISSN (Online)2222-2839

Please add our address "" into your email contact list.

This journal follows ISO 9001 management standard and licensed under a Creative Commons Attribution 3.0 License.

Copyright ©