Liquidity of a Stock Exchange, Between Investor Behavior and Scarcity of Securities: The Case Study of the West African Regional Stock Exchange

Liquidity may be evident at first glance, as it is widely debated in the literature, but regarding the question on the threshold at which a stock market is liquid, the answers are far from being evident and unanimous. This paper studies the determinants of liquidity in the West African Regional Stock Exchange through the level of float and investors behavior based on a conceptual model. The model takes into account the specificities of a market governed by players’ orders and behaviors. We analysed the scarcity of stocks and the behaviors of players based on a case study and simulation methodology. We found that investors are passive in the market, which results in under-liquidity. It can be deduced that the market is savings driven. In addition, the average time that a stock market order finds a counterpart is three to seven days. This situation is due to the scarcity of securities and / or the inability of investors to intervene in the market in a timely manner. As a result, new entrants to the market will have difficulty in offering securities, due to a lack of sufficient liquidity. In conclusion, the market liquidity depends mainly on a minimum of auctioned securities rather than investor’s participation.