Impact of Stock Market Reforms on Liquidity:Evidence from Bombay Stock Exchange

Liquidity is accepted as one of the major conditions for smooth functioning of stock markets. Variations in the degree of liquidity affect the price discovery process and efficiency of the market. In this context, the objective of this paper is to find out the impact of stock market reforms on Liquidity. In this paper, we calculate both static and dynamic liquidity indicators and also develop a market liquidity index, in order to assess the impact of reforms on market liquidity. A number of measures of liquidity are considered because there is no single theoretically correct and universally accepted measure to gauge the degree of market liquidity. Our study period is 1990-2004. Our result suggests that stock market reforms have positive impact on market liquidity and efficiency.