Analysis of the Dynamic Relationship between Liquidityproxies and returns on French CAC 40 index

Ayad Assoil (1) , Ndéné Ka (2) , Jules Sadefo-Kamdem (1)

1 MRE - Montpellier Recherche en Economie
2 UADB - Université Alioune Diop de Bambey

The aim of this paper is to analyze the dynamic evolution of six liquidity proxies ontime, and to find their causality with the French CAC 40 stock market index returns, overthe period from January 2007 to December 2018. For that, we use a vector autoregressiveapproach and the impulse response function, to do causality test between the CAC 40 index returns and six differents liquidity proxies. Empirical results suggest a significantshort-term relationship between the returns and the liquidity. As for Granger’s causalitytest, the results reveal that there is unidirectional causality running from equity returnsto liquidity.

Mots clés: Impulse response function; Granger causality; Liquidity risk; Market risk; VAR model; CAC 40 Market.

Domaines: Économie et finance quantitative [q-fin]

Ayad Assoil, Ndéné Ka, Jules Sadefo-Kamdem. Analysis of the Dynamic Relationship between Liquidityproxies and returns on French CAC 40 index. SN Business & Economics, 2021, 1 (10), ⟨10.1007/s43546-021-00129-7⟩. ⟨hal-03282991v2⟩