Free-Float and Stock Liquidity: Evidence from a Policy Experiment

Mohammad Shameem Jawed, Kiran Kumar Kotha, Vijay Kumar Gupta


On June 2010 the Securities and Exchange Board of India (SEBI) – the Indian market regulator, mandated the listed firms to increase their Minimum Public Shareholding (MPS) to 25%. Present study utilises this regulatory intervention as a natural experimental setup of an exogenous shock to free-floating stocks to examine the impact on stock liquidity. The study employs univariate Event Study and multivariate Difference-in-Difference regression analysis. Findings suggest that the MPS regulation significantly improved different stock liquidity measures and established the causality of stock free float to stock liquidity.

Keywords: Free-Float, Stock Liquidity, Minimum Public Shareholding, Difference-in-Difference.

Subject classification codes: G14, G18, G32.

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