Abstract
This study investigates the relationship between liquidity and stock market returns of the top 40 companies listed on the Johannesburg Stock Exchange, South Africa. The study used monthly data from January 2013 to June 2018. The investigation was done for all 40 companies listed on the JSE. It was done for different sectors such as retail, mining, financial and insurance. Most estimation results show evidence of positive relationship between liquidity and stock market returns. Policy makers and capital market authorities should be responsive to the impact of liquidity on stock returns. The main purpose should be to improve the development of financial markets in order to mobilise liquidity and long-term capital to foster economic growth and development. Policy makers need to consider the effect of liquidity on stock returns so that informed decisions can be made to ensure long-term financial sustainability. The recommendation made in this study is a policy framework that is mainly focused on assisting companies to become more liquid and ultimately providing stability to the financial sector and the overall economy. This will help to improve investor confidence which in turn can attract foreign investment into the South African equity market. This will ultimately improve market liquidity and in turn returns on investments.
M.Com. (Financial Economics)