The Impact of Investor Sentiments on Stock Market Liquidity

Abstract The purpose of this study is to investigate the effect of investors' emotional attitudes on stock market liquidity. To this end, the impact of investor sentiment on stock market liquidity has been investigated using the Dabata et al (2017) model and using data from 14 countries from 2008 to 2018. The Arms Index was used to measure investor sentiment and for measuring the liquidity, traded Value Index (TV), Amihud Liquidity Index (ILLIQ) and Corwin & Schultz Liquidity Index (HLS) were used. The empirical results show that the high level of market liquidity in the previous year has a positive and significant effect on the level of market liquidity in the current year. Investor sentiment has a positive and significant effect on stock market liquidity. The growth rate of money supply and the growth rate of industrial production also have a positive and significant effect on stock market liquidity, and this year's inflation rate has a negative impact on stock market liquidity. According to the results, investor sentiment in the countries studied has a positive effect on the volume of trading in the stock market and can increase trading volume and liquidity of the stock market. And part of the liquidity growth has entered the stock market and has been able to increase the volume of transactions in this market.