The liquidity of the Malta Stock Exchange : an evaluation

Abstract

The scope of this study is to assess the liquidity of equity securities listed on the Malta Stock Exchange. In particular, the key research objectives are the evaluation of the level of liquidity enjoyed by securities listed on the MSE and to provide recommendations on how liquidity may be improved. This research involves the application of statistical techniques on the characteristics of liquidity being trade frequency, trade volume and the bid-ask spread. Similar data from the Cyprus Stock Exchange was obtained so as to provide a basis of comparison. Results indicate that liquidity suffers as a result of inefficiencies which exist at the market microstructure and macroeconomic levels. Concentration of trade converges towards the most liquid investments. It is shown that liquid securities in Malta are not as liquid as securities available in more advanced markets, and that structural, social and economic issues impede liquidity from reaching levels enjoyed in highly developed exchanges. Evidence indicates that an alterative trading system which disseminates information better and reflects security prices more realistically improves liquidity. However, as it stands, the MSE is unable to unlock the full potential benefits of the equity market.