5. Conclusion
Taking an international perspective with 12 emerging markets data, this study finds empirical support for the positive impact of investor sentiment on stock-market liquidity. Our findings further strengthen the argument that investor sentiment can be a possible source of liquidity variation (Liu, 2015; Baker and Stein, 2004). Consistent with Baker et al. (2012) and Karolyi et al. (2012) claim towards contagious sentiment effect, we find supportive evidence for the potential positive (negative) impact of foreign country sentiment for emerging market liquidity (illiquidity). Our results are also consistent with the theoretical framework which suggests that due to disposition effect (Shefrin and Statman, 1985) during bullish sentiment trading volume and hence stock-market liquidity tends to grow (Ritter, 2003). On the other hand, liquidity tends to fall when the market turns south due to pessimism.
