Supply and Demand of commonality in liquidity: Utilizing Nonlinear Autoregressive Distributed Lag Model (NARDL)

Subject Areas : Journal of Capital Market Analysis

سید یحیی ابطحی ¹ , Omid Aghaei meybodi ² , hamid khajeh mahmoodabadi ³ , Gholamreza Askarzadeh ⁴

1 - هیات علمی دانشگاه آزاد اسلامی
2 - Phd candidate of financial engineering
3 - Faculty member of Islamic Azad University, Ardakan Branch, Iran
4 - Department of Financial Management, Islamic Azad University, Yazd Branch, Iran

Received: 2024-05-22 Accepted : 2024-09-06

Keywords: Commonality liquidity, market rate of return, nonlinear NARDL model,

Abstract :

Numerous factors can influence the supply and demand commonality in liquidity for equity shares, making it imperative to identify and assess these factors. The objective of this study is to investigate the determinants of supply and demand of commonality in liquidity for equity shares through the application of a Nonlinear Autoregressive Distributed Lag (NARDL) model for the period spanning from 1393:1 to 1402:12 using monthly data. The study's results suggest that within the linear ARDL model, market liquidity and market return rate positively affect the commonality in liquidity supply and demand for equity shares, with the error correction coefficient gradually adjusting from short to long-term equilibrium by 91 and 92 percent in each period. Additionally, in the nonlinear NARDL model, market liquidity and market return rate also exhibit positive impacts on equity share commonality in liquidity dynamics. The error correction coefficient indicates that 91 percent of commonality in liquidity imbalances in equity shares will be rectified in the subsequent periods.

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