Free Float and Stock Market Liquidity: Evidence from the Casablanca Stock Exchange

Abstract

This study investigates the impact of free float on stock market liquidity in the Casablanca Stock Exchange (CSE) over the period 2019–2024. Using a balanced panel dataset of 52 listed firms and employing Random Effects estimations, liquidity is assessed through two complementary proxies: the Amihud Illiquidity Ratio and the Turnover Ratio, capturing both price impact and trading activity dimensions. The empirical findings consistently indicate that free float is a key determinant of stock market liquidity. A higher proportion of tradable shares is associated with a significant reduction in illiquidity (lower Amihud ratio) and an increase in trading activity (higher turnover), confirming that greater share dispersion enhances market depth and facilitates more efficient price discovery. These results remain robust after controlling for firm-specific characteristics. Among control variables, firm size is found to improve liquidity, reflecting greater market visibility and investor participation, while return volatility increases illiquidity, consistent with risk-based trading frictions. Interestingly, firm age is associated with higher illiquidity, suggesting that more mature firms may exhibit more concentrated ownership structures or lower trading dynamics. Other variables, including profitability, leverage, and dividend policy, show limited or insignificant effects. Beyond statistical significance, the results highlight meaningful economic implications, indicating that variations in free float can substantially influence trading conditions and transaction costs in the market. These findings are particularly relevant in the context of emerging markets, where ownership concentration and limited investor participation may constrain liquidity. This study contributes to the literature by providing novel evidence from the Moroccan stock market, a relatively underexplored context in terms of ownership structure and liquidity dynamics. By employing multiple liquidity measures, the analysis offers a more comprehensive understanding of the free float–liquidity nexus. From a policy perspective, the results emphasize the importance of promoting higher free float levels through regulatory and institutional reforms, such as facilitating share dispersion and encouraging public listings. Enhancing free float can improve market liquidity, attract both domestic and foreign investors, and ultimately reduce the cost of capital for firms.