TITLE:
Liquidity Dynamics of Indian Stock Market in Financial Shocks: Extreme Value Theory
AUTHORS:
Sumit Kumar Jha, Mousumi Bhattacharya, Sharad Nath Bhattacharya
KEYWORDS:
Stock Market Liquidity, EVT, Trading Probability, Market Efficiency Coefficient
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.14,
October
24,
2018
ABSTRACT: The paper tries to capture the liquidity dynamics in the case of
extreme events such a soil
price shock and the
sub-prime crisis by considering trading probability (TP), market efficiency
coefficient (MEC) and total volume (TV) as liquidity measures in the Indian
context. Using extreme
value theory (EVT), the
results provide evidence for the
presence of significant liquidity risk in the Indian market. The results reveal
a low observed value of TP during the sub-prime financial crisis. Based on the
analyses of MEC, it can be concluded that despite the
presence of liquidity risk, the Indian market is quite resilient even in
extreme conditions. It can also
be concluded that Indian market is risky for speculators; however for long-term
investment liquidity risk is lower for BSE 500 indexed shares. The study has implications
in exploring how market participants rebalance their portfolios in response to
liquidity uncertainty.