Understanding Commonality in Liquidity Around the World

64 Pages Posted: 13 Sep 2007 Last revised: 16 Jul 2011

See all articles by George Andrew Karolyi

George Andrew Karolyi

Cornell University - SC Johnson College of Business

Kuan-Hui Lee

Seoul National University Business School

Mathijs A. van Dijk

Erasmus University Rotterdam (EUR)

Date Written: July 7, 2011

Abstract

We examine how commonality in liquidity varies across countries and over time in ways related to supply determinants (funding liquidity of financial intermediaries) and demand determinants (correlated trading behavior of international and institutional investors, incentives to trade individual securities, and investor sentiment) of liquidity. Commonality in liquidity is greater in countries with and during times of high market volatility (especially, large market declines), greater presence of international investors, and more correlated trading activity. Our evidence is more reliably consistent with demand-side explanations and challenges the ability of the funding liquidity hypothesis to help us understand important aspects of financial market liquidity around the world, even during the recent financial crisis.

Keywords: Commonality, Liquidity, International markets

JEL Classification: G12, G14, G15

Suggested Citation

Karolyi, George Andrew and Lee, Kuan-Hui and van Dijk, Mathijs A., Understanding Commonality in Liquidity Around the World (July 7, 2011). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1014063

George Andrew Karolyi (Contact Author)

Cornell University - SC Johnson College of Business ( email )

174A STATLER HALL
ITHACA, NY 14853
United States
6142820229 (Phone)

HOME PAGE: http://https://www.johnson.cornell.edu/faculty-research/faculty/gak56/

Kuan-Hui Lee

Seoul National University Business School ( email )

703 LG-bldg, Business School,
Seoul National Univ., 1 Kwanak-Ro, Kwanak-Gu
Seoul, 151-916
Korea, Republic of (South Korea)
+82 2 880-6924 (Phone)

HOME PAGE: http://sites.google.com/site/kuanlee70/

Mathijs A. Van Dijk

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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