ECONOMIC FREEDOM AND EQUITY MARKET LIQUIDITY

It is widely believed that economic freedom is a vital factor in determining the wellbeing of people. Countries with greater economic freedom become wealthier and their financial markets become stable. The paper measures the impact of the economic freedom on the liquidity of stock market of the country. We use the data for 77 countries from 1996 to 2009. The analysis reveals that some of the components of economic freedom have significant positive impact on the liquidity of stock market. When the data is separately taken for the period 2007-2009 (crisis), the results show that the index of economic freedom has significant impact on the liquidity of stock market. The above demonstrates that the countries with higher economic freedom maintain better liquidity of their stock markets.