Commonality in Liquidity: A Global Perspective
Dennis Y. Chung
Simon Fraser University
HEC Paris - Finance Department
November 1, 2006
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
We conduct a comprehensive study of commonality in liquidity using intraday spread and depth data from 47 stock exchanges. We find that firm-level changes in liquidity are significantly influenced by exchange-level changes across most of the world's stock exchanges. Emerging Asian exchanges have exceptionally strong commonality, while those of Latin America exhibit little if any commonality. After documenting the pervasive role of commonality within individual exchanges, we examine commonality across exchanges. We find evidence of a distinct, global component in bid-ask spreads and depths. Local (exchange-level) sources of commonality represent roughly 39 percent of the firm's total commonality in liquidity, while global sources contribute an additional 19 percent. We also investigate potential sources of exchange-level and global commonality. We show that commonality is driven by both domestic and US macroeconomic announcements.
Number of Pages in PDF File: 55
Keywords: Liquidity, Commonality, Bid-Ask Spreads, Depths
JEL Classification: G10, G15
Date posted: February 27, 2007 ; Last revised: September 29, 2008
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