Local stock liquidity and local factors: fresh evidence from US firms across states

Our study explicitly considers Luo et al. (2017) recommendation for more local factors to be examined and investigates a new determinant, i.e., the effect of the fraction of seniors in each US state, of local stock liquidity for 9,673 firms across US states from 2000 to 2019. The analysis provides two potential channels through which this (local) factor can affect local stock liquidity. The results report that the new factor exerts a significant impact on local firm liquidity, with the sign depending on the definition of liquidity being used. In terms of the two channels explored, the findings document an impact of the fraction of seniors on local bank deposits, while young and small firms exert a negative stronger effect on local stock liquidity versus the remaining firms. The findings carry key implications for market practitioners, such as investors, market operators, regulators, and academics and other researchers.