Munich Personal RePEc Archive

The Determinants of Securities Trading Activity: Evidence from four European Equity Markets

Camilleri, Silvio John and Galea, Francelle (2019): The Determinants of Securities Trading Activity: Evidence from four European Equity Markets. Published in: The Journal of Capital Markets Studies , Vol. 1, No. 3 (2019): pp. 47-67.

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Abstract

Purpose: The main objective of this study is to obtain new empirical evidence about the connections between equity trading activity and five possible liquidity determinants: market capitalisation, dividend yield, earnings yield, company growth, and the distinction between recently-listed firms as opposed to more established ones.

Design / Methodology / Approach: We use a sample of 172 stocks from four European markets and estimate models using the entire sample data and different sub-samples to check the relative importance of the above determinants. We also conduct a factor analysis to re-classify the variables into a more succinct framework.

Findings: The evidence suggests that market capitalisation is the most important trading activity determinant, and the number of years listed ranks thereafter.

Research limitations / implications: The positive relation between trading activity and market capitalisation is in line with prior literature, while the findings relating to the other determinants offer further empirical evidence which is a worthy addition in view of the contradictory results in prior research.

Practical implications: This study is of relevance to practitioners who would like to understand the cross-sectional variation in stock liquidity at a more detailed level.

Originality / value: The originality of the paper rests on two important grounds: (a) we focus on trading turnover rather than on other liquidity proxies, since the former is accepted as an important determinant of the liquidity generation process, and (b) we adopt a rigorous approach towards checking the robustness of the results by considering various sub-sample configurations.

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