Investigating Stock Market Liquidity : Evidence from Zimbabwe Stock Exchange

The absence of liquidity in the stock market causes uneasiness in the market. Proper trading strategies are devised when liquidity is present making the magnitude of returns determinable. The study investigated stock market liquidity levels for the Zimbabwe Stock Exchange during the pre-Covid and Covid period. The study employed the ARIMA econometric methodology to aid in investigating and forecasting future stock market liquidity levels. Monthly statistics from January 2018 to June 2022 were used. The monthly statistics were, divided; (1) pre-Covid period: January 2018 – February 2020 and (2) Covid period: March 2020 – June 2022. The efficient and reliable model after appropriate tests was an ARIMA (1, 0, 1) model for both periods. Zimbabwe stock market liquidity was found to be relatively lower as compared to other better positioned countries like South Africa. A very large gap was observed. There was a very small difference found between the pre-Covid liquidity and the Covid liquidity. On average liquidating investments in the stock market was much easier during the pre-Covid period than in the Covid period. There was significantly higher volatility during the Covid period as compared during the pre-Covid period. The forecasting power of the Covid-period model and the whole period model were almost the same. From the forecasts made, the conclusion is that stock market liquidity would remain very low in the short-run, if no strong policies implemented. The potential of significant stock market development remains impacted. Among its many recommendations, the study recommended that ways to increase stock market participation for both local and foreign investors be sort and some regulatory barriers be correctly addressed. The prohibitions against market participation by investors should be revised, and this relates to investors from outside of Africa and that from one other African country. Policymakers should promote diversified domestic investor base with different investment limits and perspectives. Traditionally known macroeconomic determinants of stock market liquidity should be considered when formulating policies to improve stock market liquidity