The Determinants and Pricing of Liquidity Commonality around the World
51 Pages Posted: 16 Jan 2017
Date Written: December 10, 2016
This paper examines the determinants and pricing of liquidity commonality using intraday data from 39 markets over 15 years. We show that liquidity commonality is driven by both market-level and firm-level factors. Liquidity commonality is higher in weaker and more-volatile economic and financial environments, in areas with poor investor protection, and in opaque information environments. Liquidity commonality is also affected by cultural and behavioral factors, including individualism and uncertainty avoidance. Moreover, we find that liquidity commonality is priced in the world’s stock markets and that the pricing effect is stronger in developed markets.
Keywords: Liquidity Commonality; Pricing of Liquidity; International Financial Markets
JEL Classification: G11, G12, G15
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