The analysis of relationship between economic uncertainty shock and stock market illiquidity using Time-Varying Structural VAR Model (TVSVAR)

Subject Areas : Journal of Capital Market Analysis

seyed hamed poorhosseini ¹ , Hossein Sharifi Renani ² , Saeed Daie-Karimzadeh ³

1 - Ph.D. Candidate, Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran
2 - Associate Professor, Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran
3 - Assistant Professor, Department of Economics, Associate Professor, Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.

Received: 2023-04-30 Accepted : 2023-09-11 Published : 2023-08-23

Keywords: Economic uncertainty, inflation, Liquidity volume, Illiquidity, TVSVAR model,

Abstract :

Uncertainty can have profound consequences for both companies and individuals hoping to make optimal decisions for their benefit. Economic agents in financial markets are generally concerned about uncertainty in the political, economic and environmental spheres. When prior expectations are compromised by the increased likelihood of uncertain outcomes, agents must wait for the waves of uncertainty to dissipate before making sound financial decisions. In this research, the relationship between economic uncertainty shock and illiquidity of the stock market has been analyzed using the Time-Varying Structural Vector Auto-regressive model TVSVAR during the years 2008:4-2020:3. The obtained results indicate that the effect of the economic uncertainty shock on illiquidity was positive and increasing in most of the periods and years under investigation, and the effect of the shock of liquidity volume growth on illiquidity had a decreasing effect in most of the periods and years. The effect of inflation shock on illiquidity increased in all the studied periods and years, but in 2016 and 2020, it had a decreasing effect in the final period.