Commonality in Liquidity: Evidence from an Order-Driven Market Structure

Posted: 14 Nov 2001

See all articles by Paul Brockman

Paul Brockman

Lehigh University - College of Business

Dennis Y. Chung

Simon Fraser University

Abstract

Events such as the 1997 East Asian financial crisis indicate that individual firm liquidity is strongly influenced by marketwide factors. Previous market microstructure research, however, focuses almost exclusively on the firm-specific attributes of liquidity. Our study follows the recent shift in emphasis toward commonality by examining systematic liquidity in an order-driven market structure. Using data from the Stock Exchange of Hong Kong, we show that commonality in liquidity includes both market and industry components, and is pervasive across size-sorted portfolios. We also find a significant market and industry component in individual firms' order flow. In contrast to quote-driven results, we do not find a positive relation between firm size and sensitivity to changes in marketwide bid-ask spreads.

JEL Classification: G15

Suggested Citation

Brockman, Paul and Chung, Dennis Y., Commonality in Liquidity: Evidence from an Order-Driven Market Structure. Forthcoming in Journal of Financial Research. Available at SSRN: https://ssrn.com/abstract=287717

Paul Brockman

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Dennis Y. Chung (Contact Author)

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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