This study examines whether stock market illiquidity forecasts real UK GDP growth using data over the period 1989q1-2012q2. Apart from standard linear model specifications, we also utilize non-linear models, which allow for regime switching behavior in terms of a liquid versus an illiquid market...

We develop an empirical framework that links micro-liquidity, macro-liquidity and stock prices. We provide evidence of a strong link between macro-liquidity shocks and the returns of UK stock portfolios constructed on the basis of micro-liquidity measures between 1999 and 2012. Specifically,...