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    Aug6 Capam Bhat

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    The document discusses factors that determine stock market liquidity. It states that liquidity is important because it creates investor demand by allowing easy entry and exit, facilitates risk management, and leads to rational asset valuation. Liquidity is determined by demand factors like diverse investors and trading needs, and supply factors like ample securities and regular public offerings. Investors trade for reasons like profit-taking, hedging, and speculation. The document concludes that promoting liquidity requires low costs, transparency, and diverse investors in order to efficiently allocate capital.

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    Aug6 Capam Bhat

    Uploaded by

    kshitij_rathod239426
    10 views6 pages
    The document discusses factors that determine stock market liquidity. It states that liquidity is important because it creates investor demand by allowing easy entry and exit, facilitates risk management, and leads to rational asset valuation. Liquidity is determined by demand factors like diverse investors and trading needs, and supply factors like ample securities and regular public offerings. Investors trade for reasons like profit-taking, hedging, and speculation. The document concludes that promoting liquidity requires low costs, transparency, and diverse investors in order to efficiently allocate capital.

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    The document discusses factors that determine stock market liquidity. It states that liquidity is important because it creates investor demand by allowing easy entry and exit, facilitates risk management, and leads to rational asset valuation. Liquidity is determined by demand factors like diverse investors and trading needs, and supply factors like ample securities and regular public offerings. Investors trade for reasons like profit-taking, hedging, and speculation. The document concludes that promoting liquidity requires low costs, transparency, and diverse investors in order to efficiently allocate capital.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT or read online from Scribd
    Flag for inappropriate content
    Download as ppt
    10 views6 pages

    Aug6 Capam Bhat

    Uploaded by

    kshitij_rathod239426
    The document discusses factors that determine stock market liquidity. It states that liquidity is important because it creates investor demand by allowing easy entry and exit, facilitates risk management, and leads to rational asset valuation. Liquidity is determined by demand factors like diverse investors and trading needs, and supply factors like ample securities and regular public offerings. Investors trade for reasons like profit-taking, hedging, and speculation. The document concludes that promoting liquidity requires low costs, transparency, and diverse investors in order to efficiently allocate capital.

    Copyright:

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    Download as PPT or read online from Scribd
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    August 7, 2003

    Stock Markets and Liquidity

    U R Bhat
    Director & Head of Equities
    J.P. Morgan India Private Limited
    +91 22 5639-3000
    u.r.bhat@jpmorgan.com
    Why Liquidity?

    The importance of liquidity

     Creates demand – investors get in if they can exit

     Facilitates risk management

     Rational valuation of financial assets

    2
    What Determines Liquidity?

    Demand factors

     Multiplicity of investors

     Diverse demand patterns

     Trading needs of investors

     Competition in investment performance

     Low transaction costs

    3
    What Determines Liquidity?

    Supply factors

     Sizeable and stable supply of securities

     Regular and transparent supply of securities

     Public offerings of high quality securities

    Investors trade only in their self interest

    4
    Why Do Investors Trade?

    Motivations to trade

     Profit/loss booking

     Arbitrage

     Hedging positions

     Portfolio rebalancing

     Speculation

    Diffused boundaries between the motivation factors

    5
    Facilitating Liquid Markets

    Promoting Liquidity

     Informational efficiency

     Low transactions costs

     Trading-neutral accounting and taxation

     Investors with diverse investment horizons

     Operational transparency

     Realistic exposure limits

    Liquid markets facilitate efficient capital allocation

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