Stock Market Liquidity and Firm Performance in the Nigerian Stock Exchange

Abstract

The paper extends the investigation on the relationship between liquidity and stock returns by examining the influence of market liquidity on stock returns in the Nigerian Stock exchange. Vector auto-regression model was employed in examining the impact of liquidity measures such as the volume of trading and turnover on stock returns for the period 1985-2015. Empirical results suggest that the higher the market liquidity (volume of trading and turnover), the higher the stock index returns. Thus, establishing a positive relationship between liquidity and stock returns of firms listed on the Nigerian stock market during the period examined after controlling for market size. This result is not in line with the negative relationship between liquidity and market return as obtained by studies on developed markets.