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This chapter measures stock market liquidity with three low-frequency liquidity estimators, and investigates the long-term behaviour of commonality in liquidity on the Shanghai Stock Exchange (SSE) through principal component analyses and panel regressions. The findings provide strong evidence of liquidity co-movement on the SSE from its inception to the present. The extent of commonality in liquidity varies significantly over time. Remarkably, it surged in 2007, which corresponds to the onset of the subprime mortgage-triggered financial crisis; however, the subsequent behaviour is divergent among our different liquidity proxies.

Negative relationship between the return of a stock and its liquidity suggests that the illiquid stocks are riskier than liquid stocks. Thus, researchers tend to include the stock liquidity as a variable in asset pricing models, where the stock and market liquidities are usually considered as independent. The purpose of this paper is to reexamine the relationship between the return of a stock and its liquidity by using a relative measure that links the individual stock liquidity with market‐wide liquidity.

Multivariate regressions are employed to examine the effect of relative market liquidity on the stock return while controlling the effects of other factors.

Negative relationship between the stock return and liquidity is confirmed, but the relationship is not linear. It is found that the relative measure of liquidity is not a substitute, but complement to other liquidity measures used in prior studies. It is also found that fluctuation in relative stock liquidity does not positively affect the return.

The study is conducted on New York Stock Exchange and American Stock Exchange exchanges using monthly data. The robustness tests using the daily or weekly data are not conducted.

Findings may suggest that investors do not seriously concern about the fluctuations of individual stock liquidity, provided that the stock liquidity is higher than the average market liquidity.

For the first time, the liquidity risk is tested using a relative measure instead of an absolute measure. Since fluctuation in stock liquidity does not positively affect the return, a new question arises whether the variability in liquidity can reflect the liquidity risk.

Liquidity risk, i.e., the likelihood that a swap can be “sold” (i.e., assigned) may affect swap prices. This article addresses the importance of liquidity risk as a factor in the valuation of swaps, which are subject to default risk. The author presents a model for pricing these swaps by incorporating a proxy for liquidity risk. Using the model, the author finds that the effects of liquidity risk may partially offset the effects of default risk.

The purpose of this paper is to examine corporate liquidity management of companies listed on the Ghana Stock Exchange (GSE) with the aim of ascertaining the determinants of corporate liquidity holdings.

The paper adopts a dynamic panel model where a lagged dependable variable is introduced as an explanatory variable. Annual data from the annual reports and financial statements of the firms together with the GSE Factbook are used in the gathering of data spanning 1991‐2007. The Arrellano‐Bond estimator is used which incorporates the Sargan test for over identification.

Leverage is found to be not significant to Ghanaian‐listed firms' liquidity demand perhaps due to the developmental stage of the financial market. However, liquidity is found to be statistically significantly influenced by a target liquidity level, size of the firm, return on assets and net working capital.

This is the first of its kind in the country despite the numerous studies carried out on the GSE.

We explore the impact of equity liquidity on a firm’s dynamic leverage adjustments and the moderating impacts of leverage deviation and target instability on the link between equity liquidity and dynamic leverage in the UK market.

In applying the two-step system GMM, we estimate our model by exploring suitable instruments for the dynamic variable(s), i.e. lagged values of the dynamic term(s).

Our analyses document that a firm’s equity liquidity has a positive impact on the speed of adjustment (SOA) of its leverage ratio back to the target ratio in the UK market. We also demonstrate that the positive relationship between liquidity and SOA is more pronounced for firms whose current position is relatively close to their target leverage ratio and whose target ratio is relatively stable.

This study provides important implications for both firms’ managers and investors. Particularly, firms’ managers who wish to increase the leverage SOA to enhance firms’ value need to give great attention to their equity liquidity. Investors who want to evaluate firms’ performance could also consider their equity liquidity and leverage SOA.

We are the first to enrich the literature on leverage adjustments by identifying equity liquidity as a new determinant of SOA in a single developed country with many differences in the structure and development of capital markets, ownership concentration and institutional characteristics. We also provide new empirical evidence of the joint effect of equity liquidity, leverage deviation and target instability on leverage SOA.

Keeping in view the robust growth of Islamic banking around the globe, this study aims to comparatively analyze the association between liquidity creation and liquidity risk for Islamic banks (IBANs) and conventional banks (CBANs) in Pakistan and Malaysia over a period of 2004–2021. The moderating role of bank loan concentration on the aforementioned relationship is also studied.

Regression estimation methods such as fixed effect, random effect and generalized least square are deployed for obtaining results. Liquidity creation Burger Bouwman measure (cat fat and noncat fat) and Basel-III liquidity risk measure (liquidity coverage ratio) are also used.

The results give us insight that liquidity creation is positively and significantly related to liquidity risk in both IBANs and CBANs of Pakistan and Malaysia. This relationship has been moderated negatively (reversed) and significantly by credit concentration showing the importance of risk management and loan portfolio concentration.

It is analyzed that during the process of liquidity creation, IBANs in Pakistan faced more liquidity risk for both on and off-balance sheet transactions in the presence of moderation of loan concentration than IBANs in Malaysia necessitating strategic policy-making for important aspects of liquidity risk management and loan concentration while creating liquidity.

Such studies comparing IBANs and CBANs comparison keeping in view liquidity creation, liquidity risk and loan concentration are either limited or nonexistent.

This study aims to investigate differences between Islamic and conventional banks in Pakistan with respect to their operational efficiency, liquidity risk and asset quality. Importantly, in addition to full-fledged Islamic and conventional banks, this study also investigates a more recently emerged breed of hybrid banks, i.e. Islamic divisions of conventional banks.

Data for the period 2011–2020 was collected from financial reports of all full-fledged Islamic banks (5), Islamic banking divisions of conventional banks (8) and conventional banks (20) in Pakistan. Logistic regressions were designed to test the proposed hypotheses.

The findings suggest that full-fledged Islamic banks are operationally less efficient and experience higher liquidity risk than conventional banks. However, the asset quality of Islamic banks is better than that of conventional banks. Next, in the robustness analysis, the authors extended the sample size by adding the Islamic divisions (window) of the conventional banks; they found almost the same result except for efficiency which turned out to be non-significantly related to bank type.

The findings are beneficial for investors, depositors, consumers and bank management in understanding the financial features of such as efficiency, liquidity and liquidity risk that separate Islamic banks from conventional banks.

The findings of this study present a clear picture to bankers and practitioners about some financial features of banking systems and depict that Islamic banks are in need to improve their liquidity risk management practices to compete with conventional banks.

This study examines the influence of stock liquidity on stock price crash risk and the moderating role of institutional blockholders in Vietnam’s stock market.

Crash risk is measured by the negative coefficient of skewness of firm-specific weekly returns (NCSKEW) and the down-to-up volatility of firm-specific weekly stock returns (DUVOL). Liquidity is measured by adjusted Amihud illiquidity. The two-stage least squares method is used to address endogeneity issues.

Using firm-level data from Vietnam, we find that crash risk increases with stock liquidity. The relationship is stronger in firms owned by institutional blockholders. Moreover, intensive selling by institutional blockholders in the future will positively moderate the relationship between liquidity and crash risk.

Since stock liquidity could exacerbate crash risk through institutional blockholder trading, firm managers should avoid bad news accumulation and practice timely information disclosures. Investors should be mindful of the risk associated with liquidity and blockholder trading.

We contribute to the literature by showing that the activities of blockholders could partly explain the relationship between liquidity and crash risk. High liquidity encourages blockholders to exit upon receiving private bad news.

The study seeks to evaluate the effect of capital adequacy and competition on the liquidity creation of Kenyan commercial banks.

Unbalanced panel data from 36 Kenyan commercial banks with licenses from 2001 to 2020 is used in the study. The generalized method of moments (GMM), a two-step system, is employed in the investigation. To increase the robustness and prevent erroneous findings, serial correlation tests and instrumental validity analyses are used. The methodology developed by Berger and Bouwman (2009) is used to estimate the commercial banks' levels of liquidity creation.

The study supports the financial fragility-crowding out hypothesis by finding a significant negative effect of capital adequacy on the liquidity creation of commercial banks. The research also identifies a significant inverse relationship between competition and liquidity creation, depicting competition's value-destroying effect.

A trade-off exists between capital adequacy and liquidity creation, which must be carefully evaluated as changes in capital requirements are considered. The value-destroying effect of competition on liquidity creation presents a case for policy geared toward consolidating banks' operations through possible mergers and acquisitions.

To the best of the authors' knowledge, this is the first study to empirically offer evidence concurrently on the effect of competition and capital adequacy on the liquidity creation of commercial banks in a developing economy such as Kenya. Additionally, the authors employ a novel measure of competition at the firm level.