Uncovering the time-varying relationship between commonality in liquidity and volatility
This study examines the dynamic linkages between commonality in liquidity in international stock markets and market volatility. Using a recently proposed liquidity measure as input in a variance decomposition exercise, we show that innovations to liquidity in most markets are induced predominately b...
| Autores: | , , |
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| Tipo de recurso: | artículo |
| Estado: | Versión aceptada para publicación |
| Fecha de publicación: | 2020 |
| País: | España |
| Institución: | Varias* (Consorci de Biblioteques Universitáries de Catalunya, Centre de Serveis Científics i Acadèmics de Catalunya) |
| Repositorio: | Recercat. Dipósit de la Recerca de Catalunya |
| OAI Identifier: | oai:recercat.cat:2445/174958 |
| Acceso en línea: | https://hdl.handle.net/2445/174958 |
| Access Level: | acceso abierto |
| Palabra clave: | Liquiditat (Economia) Mercat financer Crisis financeres Anàlisi de variància Liquidity (Economics) Financial market Financial crises Analysis of variance |
| Sumario: | This study examines the dynamic linkages between commonality in liquidity in international stock markets and market volatility. Using a recently proposed liquidity measure as input in a variance decomposition exercise, we show that innovations to liquidity in most markets are induced predominately by inter-market innovations. We also find that commonality in liquidity peaks immediately after large market downturns, coinciding with periods of crisis. The results from a dynamic Granger causality test indicate that the relationship between commonality in liquidity and market volatility is bi-directional and time-varying. We show that while volatility Granger-causes commonality in liquidity throughout the entire sample period, market volatility is enhanced by commonality in liquidity only in sub-periods. Our results are helpful for practitioners and policy makers. |
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