The Impact of Social Norms on Stock Liquidity

There is a growing body of research that shows the impact of culture on individual’s financial decisions. We aim to investigate how the strength of social norms and the tolerance for deviant behavior influence stock liquidity. Using a panel of 26 developed and 19 emerging countries we show that there is an inverted U-shaped relationship between the measure of cultural tightness-looseness, developed by Gelfand et al. (2011) and stock liquidity. Additionally, our results suggest that financial literacy has a moderating effect on the relationship between social norms and liquidity.