64 Pages Posted: 13 Sep 2007 Last revised: 16 Jul 2011
Date Written: July 7, 2011
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: 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
By Meb Faber