Market liquidity, information efficiency and stock performance on the Uganda Securities Exchange (USE)

Abstract

The purpose of the study was to examine the relationship between Market Liquidity, information efficiency and Stock Performance on the Uganda Securities Exchange (USE). This arose out of the observation that trading activities has been reducing persistently due to reducing equity prices. This made investors not to achieve better returns on the stock they buy or sell, thereby quitting the Market without profits but only with losses. The methodology was across sectional design using a sample of 80 Market participants on the USE. Data was collected using questionnaires administered to market participants, selected using simple random sampling. Data was analyzed using Pearson correlation coefficient and regression analysis options of the SPSS program version 11. Findings indicates that stock performance is influenced by Market Liquidity, however, if investors are to profit from equities, they should focus on the bid-ask spread for a given number of shares and commission plus fees to be paid per share. But majority of the investors were not aware of the impact of the width and were ignoring it, despite its significant effect on their return. Findings also revealed that, the Market has to be liquid in order to attract more investors who may participate in private information seeking about stocks traded. And publically available information about a current stock on the USE is associated with its performance not the private information, so if investors want to benefit from the Market, they have to put emphasis on the amount of information available on the equities listed. Therefore, the study recommended that if investors are to succeed in stock selection, these investors should conduct research on the nature of orders placed on the Market because a lot of information is imbedded in it regardless of who places the order.