This study constructs two liquidity indicators, “Closing Percent Quoted Spread” and “Closing Percent Quoted Spread Impact”, for all publicly listed firms on Bursa Malaysia over the 2000-2014 sample period. The raw firm-level daily liquidity values are averaged across months and then aggregated using equal- and value-weighted schemes to provide two Malaysian monthly aggregate liquidity indicators. Tracking the level of market liquidity over the last 15 years, all indicators consistently show that there is an obvious dry-up in liquidity in year 2008 when the bankruptcy of Lehman Brothers shattered confidence in the financial markets. Unlike the U.S. stock exchanges, there is no conclusive evidence to suggest that liquidity in the Malaysian market has improved over the sample period. However, in the short-term, there is evidence of seasonality in which the market is less liquid at year end as compared to the beginning of the year. Further structural break analysis indicates that the sharp liquidity changes in the Malaysian stock market are mainly driven by reactions to international events. When comparing with other commonly used liquidity proxies, the correlation analysis provides evidence in the Malaysian context that the turnover ratio is a poor indicator of liquidity.
Aggregate liquidity; Malaysian stock market; Seasonality; Structural Break; Trend