Understanding the Impact of Liquidity Shocks on Stock Price

Abstract

Stock price fluctuations are a common occurrence across all stock exchanges and are considered a natural part of market behavior. These price changes are driven by a range of factors, both internal and external to companies. By identifying these influencing factors, shareholders can make better-informed decisions regarding their investments, evaluating both their own and others’ holdings in the market. This study explores the effect of stock liquidity and order restrictions on future price fluctuations in petrochemical companies listed on the Tehran Stock Exchange over a five-year period. The hypotheses are tested through panel data econometrics and the EViews7 software. The results indicate a significant correlation between relative liquidity and future stock price fluctuations, as well as between sales order limits and future price changes. Based on these findings, it is recommended that regulatory bodies implement robust policies around stock liquidity and sales order limits to help reduce sudden fluctuations in the market.

Received: 7 November 2024 | Revised: 17 March 2025 | Accepted: 27 May 2025

Conflicts of Interest

The authors declare that they have no conflicts of interest to this work.

Data Availability Statement

Data sharing is not applicable to this article as no new data were created or analyzed in this study

Author Contribution Statement

Roya Anvari: Writing – original draft, Writing – review & editing, Visualization, Supervision, Project administration, Funding acquisition. Sara Fooladi: Conceptualization, Methodology, Soft – ware, Validation, Formal analysis, Investigation, Resources, Data curation, Writing – original draft, Writing – review & editing, Visualization.