Free Float and Stock Liquidity: Evidence from Pakistan Stock Exchange

Liquidity has become increasingly important in the stock market, highlighting its vital role in enabling high-volume trading with minimal price distortion, speed, and convenience. This study is carried out to examine the relationship between free float and stock market liquidity using different ratios and models namely, Amihud, Amivest and turnover. For this purpose, a sample of top 100 listed companies are selected from Pakistan Stock exchange (PSX) from 2013 to 2022. An inverse relationship between free float and liquidity was found using Amihud ratio whereas turnover ratio supports the notion of improved liquidity with increased free float. This study highlights the importance of free float in capital markets and offers practical advice for businesses and individuals navigating the complexities of stock liquidity. While our paper contributes to the current body of literature, it also invites additional investigation by bringing in a variety of variables and broadening the focus outside of Pakistan's KSE 100 index companies.