The Role of M/BV Ratio in the Liquidity of Amman Stock Exchange

Although there are numerous studies appraised the power of market-to-book value ratio to influence the performance of stock markets; however, there is a lack in literature regarding the role of M/BV ratio to improve the liquidity of Amman stock Exchange. Therefore, this paper aimed at scrutinizing the causal relationship of market-to-book value ratio along with Amman stock exchange’s liquidity. Therefore, the study employed advanced empirical techniques such as the Augmented Dickey Fuller and the Johansen co-integration tests in order to analyze a quarterly time series data covers the period Q1/2004-Q4/2018. Consequently, the findings revealed a non-significant long-run integration between market-to-book value ratio and the liquidity of Amman stock exchange as gauged by the turnover ratio and the number of transactions. Moreover, the study concluded that the ratio of M/BV cannot be considered as an effective tool to shape the decisions of Jordanian investors as well as investors cannot rely on this ratio in order to evaluate the performance of Amman stock exchange.