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Economic policy uncertainty and stock liquidity: evidence from China

Liguang Zhang (School of Accounting, Southwestern University of Finance and Economics, Chengdu, China)
Wanyi Chen (SILC Business School, Shanghai University, Shanghai, China)
Ning Hu (School of Accounting, Southwestern University of Finance and Economics, Chengdu, China)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 30 March 2021

Issue publication date: 2 January 2023

606

Abstract

Purpose

The main purpose of this study is to examine whether economic policy uncertainty affects the stock liquidity. Furthermore, this study explores the influencing factors, transmission mechanism and solution path between economic policy uncertainty and the stock liquidity.

Design/methodology/approach

A data set comprising 97,729 firm-quarter observations of Chinese firms with A-shares listed on the Shenzhen and Shanghai stock exchanges was selected, China's economic policy uncertainty was measured by using the China Economic Policy Uncertainty Index and the impact of economic policy uncertainty on the stock liquidity over the period 2004–2017 was empirically tested. The empirical analysis was based on ordinary least square regression model, and mediation and moderation effect models were used in the further analysis.

Findings

The empirical results show that the higher the economic policy uncertainty, the lower the stock liquidity, which is more significant in firms with an opaque information environment, less investor attention and weak risk resistance ability. The authors argue that the transmission mechanism can be explained by the quality of information disclosure and investor sentiment. Moreover, the negative impact of economic policy uncertainty on the stock liquidity can be mitigated by increasing voluntary disclosures.

Originality/value

This study enriches the literature on factors affecting the stock liquidity from the perspective of macroeconomic policy and provides a reference for policymakers to formulate relevant measures to improve the stock liquidity in emerging markets.

Keywords

Citation

Zhang, L., Chen, W. and Hu, N. (2023), "Economic policy uncertainty and stock liquidity: evidence from China", International Journal of Emerging Markets, Vol. 18 No. 1, pp. 22-44. https://doi.org/10.1108/IJOEM-06-2020-0625

Publisher

:

Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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