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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| Formato: | artículo |
| Estado: | Versión enviada para evaluación y publicación |
| Fecha de publicación: | 2019 |
| País: | España |
| Recursos: | Universitat Oberta de Catalunya (UOC) |
| Repositorio: | O2, repositorio institucional de la UOC |
| OAI Identifier: | oai:openaccess.uoc.edu:10609/113666 |
| Acesso em linha: | https://hdl.handle.net/10609/113666 |
| Access Level: | acceso abierto |
| Palavra-chave: | systemic liquidity market liquidity spillover index Granger causality financial crisis variance decomposition liquiditat sistèmica liquiditat del mercat índex d'excedent causalitat de Granger crisi financera descomposició de la variància liquidez sistémica liquidez del mercado índice de excedente causalidad de Granger crisis financiera descomposición de la varianza Investment analysis Anàlisi financera Análisis financiero |
| Resumo: | 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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