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Monetary policy and liquidity of Vietnam’s stock market

This study investigates the impact of monetary policy on liquidity of Vietnam’s stock market from September 2007 to November 2014. Time series of liquidity are determined by monthly liquidity data for 643 enterprises in the surveyed period. | 2 Tran Thi Hai Ly / Journal of Economic Development 23(2) 02-21 Monetary Policy and Liquidity of Vietnam’s Stock Market TRAN THI HAI LY University of Economics HCMC – hailyth@ueh.edu.vn ARTICLE INFO ABSTRACT Article history: This study investigates the impact of monetary policy on liquidity of Vietnam’s stock market from September 2007 to November 2014. Time series of liquidity are determined by monthly liquidity data for 643 enterprises in the surveyed period. Two variables of the monetary policy, including growth in money supply and interbank rate, are employed in VAR model along with four different measures of market liquidity. The results show that unexpected variance in the two monetary policy variables has no significant impact on the market liquidity, which, in turn, may be improved by the positive shocks of market returns, inflation, and growth in industrial production. Market variance does produce certain effects, but discrepancies occur in the signs of various liquidity measures. Received: May. 06. 2015 Received in revised form: May. 16. 2015 Accepted: Mar. 25 2016 Keywords: Liquidity, monetary policy. Tran Thi Hai Ly / Journal of Economic Development 23(2) 02-21 3 1. Introduction Prior studies on liquidity mainly centered on the development of liquidity measures in various markets ranging from developed to emerging stock securities and examined whether liquidity should be one of the risk components in asset pricing models as well as its determinants. At the market level the issue of liquidity becomes increasingly critical, particularly amid the shocks it has ever suffered during the past two decades. Evidently, policy makers have made a move to impact on liquidity owing to its importance attached to efficiency of financial market and prosperity of the economy (Chordia et al., 2008). Recent studies also focus more on market-level time series data and inspect a variety of macro factors with influence on liquidity such as inflation, growth, and .