Multidimensional Liquidity: Evidences from Indian Stock Market

  • Sharad Nath Bhattacharya Indian Institute of Management Shillong
  • Pramit Sengupta Army Institute of Management Kolkata
  • Mousumi Bhattacharya Indian Institute of Management Shillong
  • Basav Roychoudhury Indian Institute of Management Shillong
Keywords: Liquidity, Turnover Rate, Market Efficiency Coefficient, Trading Probability, Artificial Neural Network, Random Forest

Abstract

Various dimensions of liquidity including breadth, depth, resiliency, tightness, immediacy are examined using BSE 500 and NIFTY 500 indices from Indian Equity market. Liquidity dynamics of the stock markets were examined using trading volume, trading probability, spread, Market Efficiency coefficient, and turnover rate as they gauge different dimensions of market liquidity. We provide evidences on the order of importance of these liquidity measures in Indian stock market using machine learning tools like Artificial Neural Network (ANN) and Random Forest (RF). Findings reveal that liquidity variables collectively explains the movements of stock markets. Both these machine learning tools performs satisfactorily in terms of mean absolute percentage error. We also evidenced lower level of liquidity in Bombay Stock Exchange (BSE) than National Stock Exchange (NSE) and findings supports the liquidity enhancement program recently initiated by BSE.

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Published
2016-12-31
Section
Articles