Understanding Commonality in Liquidity Around the World
George Andrew Karolyi
Cornell University - Johnson Graduate School of Management
Seoul National University Business School
Mathijs A. Van Dijk
Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM)
July 7, 2011
Journal of Financial Economics (JFE), Forthcoming
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.
Number of Pages in PDF File: 64
Keywords: Commonality, Liquidity, International markets
JEL Classification: G12, G14, G15
Date posted: September 13, 2007 ; Last revised: July 16, 2011
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo5 in 0.375 seconds