Many profitable investments require a long-term commitment of capital, but investors are often reluctant to relinquish control of their savings for long periods. At the same time, companies enjoy permanent access to capital raised through equity issues. Further, by making investment less risky and more profitable, stock market liquidity can also lead to more investment. Put succinctly, investors will come if they can leave. There are alternative views about the effect of liquidity on long-term economic growth, however.
Some analysts argue that very liquid markets encourage investor myopia.
Because they make it easy for dissatisfied investors to sell quickly, liquid markets may weaken investors' commitment and reduce investors' incentives to exert corporate control by overseeing managers and monitoring firm performance and potential. According to this view, enhanced stock market liquidity may actually hurt economic growth. This ratio does not directly measure the costs of buying and selling securities at posted prices. Yet, averaged over a long time, the value of equity transactions as a share of national output is likely to vary with the ease of trading. In other words, if it is very costly or risky to trade, there will not be much trading.