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1 Maria Shams Khakwani, 2 Rehana Kouser 1 PhD Scholar, Bahauddin Zakariya University, Multan Pakistan; Lecturer, The Women University Multan, Pakistan, mariashams3025@gmail.com 2 Professor, Department of Commerce, Bahauddin Zakariya University, Multan, Pakistan, rehanakousar@bzu.edu.pk RTICLE DETAILS ABSTRACT History Revised format: February 2021 Available Online: March 2021 This study intends to examine the nature & direction of relationship between stock market movements, particularly market decline, and its liquidity in 14 selected emerged and emerging economies (G8+5 and Pakistan) for January 2001 through December 2017 by applying Autoregressive Distributed Lag (ARDL) Bounds test and Grangercausality test. Trading value and turnover ratio are employed to measure market liquidity. Results of trading value Granger-causality test highlight the evidence of no causality in Germany & India. Bidirectional causality exists in Pakistan only. Uni-directional causality subsists only in Russia at 10% significance level from trading value to market return. However, from market return to trading value, results demonstrate the presence of uni-directional causality at 5% significance level for Brazil, Japan. Canada, China, France, Italy, UK, USA, South Africa and Mexico. Negative returns are used to represent the notion of market decline. The results exhibited by both proxies of liquidity demonstrate that two-way association exists between stock market decline and liquidity in the long term. Thus cointegration in long-run is suggested by ARDL bounds test at 1% significance level for all the emerging and emerged countries in the sample.

Bidirectional Relationship between Stock Market Decline and Liquidity: A Study of Emerged & Emerging Economies