Assessing the Determinants of Stock Market Liquidity and Their Effect on Trading Efficiency in Global Exchanges

Posted: Jul 14, 2012

• Scarlett Adams
• Scarlett Hernandez
• Scarlett Scott

Abstract

The study of stock market liquidity represents a fundamental pillar of financial market research, yet traditional approaches have largely remained constrained by linear modeling frameworks and conventional liquidity metrics. This research introduces a paradigm shift in liquidity assessment by integrating quantum-inspired computational techniques with financial market analysis. The conventional understanding of liquidity determinants has primarily focused on established variables such as bid-ask spreads, trading volume, and market depth, while overlooking the complex, non-linear interactions that characterize modern global financial markets. Our approach addresses this limitation by developing a novel methodological framework that captures the intricate relationships between liquidity determinants and trading efficiency across diverse market structures. Global financial exchanges operate within an increasingly interconnected ecosystem where liquidity dynamics transcend traditional geographical and temporal boundaries. The emergence of high-frequency trading, algorithmic market making, and cross-border capital flows has fundamentally transformed the nature of market liquidity, necessitating more sophisticated analytical approaches. Traditional liquidity measures, while valuable, often fail to account for the emergent properties that arise from the complex interactions between multiple market participants and trading venues. This research seeks to address these limitations by proposing a comprehensive framework that integrates quantum computational principles with financial econometrics. Our study is motivated by the recognition that financial markets exhibit properties analogous to quantum systems, including superposition, entanglement, and non-local correlations.