Liquidity in the emerging markets:The case of Nairobi stock exchange equities market

Abstract

The general objective of this study was to assess the changes in liquidity at the NSE during the period between January 2000 and December 2005. The specific objectives were; (i) to determine the liquidity status of the NSE during the years between January 2000 and December 2005, and (ii) to determine whether there was any significant change in liquidity over the period. The null hypothesis of the study was that there had been no significant change in liquidity at the NSE during the period between January 2000 and December 2005. In order to avoid the pitfalls of one measure of liquidity, it was preferred, in this study, to use three models to study the liquidity of the NSE. The three liquidity measures identified for use in this study were (i) Liquidity Ratio 1 (ii) Liquidity Ratio 2 and (iii) the Flow Ratio. The use of these three measures allowed the study to combine the one-dimension volume-related measures of liquidity with those of one-dimension time-related measures. Analysis of variance (ANOVA) was then carried out to determine whether there was significant change in the liquidity measures over the years selected.