Market Liquidity and Trading Activity

45 Pages Posted: 24 Aug 2000

See all articles by Tarun Chordia

Tarun Chordia

Emory University - Department of Finance

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Richard Roll

California Institute of Technology

Date Written: July 25, 2000

Abstract

Spreads, depths and trading activity for US equities are studied over an extended time sample. Daily changes in market averages of liquidity and trading activity are highly volatile, negatively serially correlated and influenced by a variety of factors. Liquidity plummets significantly in down markets but increases weakly in up markets. Trading activity increases in either up or down markets. Recent market volatility induces less trading activity and reduces spreads. There are strong day-of-the-week effects; Fridays are relatively sluggish while Tuesdays are active. Long and short term interest rates influence liquidity and trading activity. Depth and trading activity increase just prior to major macroeconomic announcements.

Keywords: Liquidity, spreads, depths, trading activity, transactions data

JEL Classification: G12, G14

Suggested Citation

Chordia, Tarun and Subrahmanyam, Avanidhar and Roll, Richard W., Market Liquidity and Trading Activity (July 25, 2000). Eleventh Annual Utah Winter Conference. Available at SSRN: https://ssrn.com/abstract=237674 or http://dx.doi.org/10.2139/ssrn.237674

Tarun Chordia (Contact Author)

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States
404-727-1620 (Phone)
404-727-5238 (Fax)

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Richard W. Roll

California Institute of Technology ( email )

1200 East California Blvd
Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)

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