Freedom of Choice and Liquidity Co-movement

53 Pages Posted: 30 Nov 2017 Last revised: 20 Apr 2020

See all articles by Pawan Jain

Pawan Jain

University of Wyoming - College of Business - Department of Economics and Finance

Mohamed A. Mekhaimer

St. John Fisher College

Ronald W. Spahr

University of Memphis - Finance

Mark Sunderman

University of Memphis

Date Written: February 19, 2020

Abstract

We develop freedom of choice indices for 46 countries and test its influence on systematic liquidity co-movements. Country-specific indices reflect the impacts of three aspects of freedom of choice: (i) opportunity, (ii) decisional autonomy and (iii) immunity from interference. We find that countries promoting and institutionalizing individual opportunities for freedom of choice, with minimal government interference, experience lower country-specific systematic liquidity co-movements. Our results further document that all the three aspects of freedom of choice are important for reducing stock systematic liquidity risk. As robustness tests, we apply different delineations of liquidity co-movement, finding that results are robust to alternative freedom of choice definitions and model specifications.

Keywords: Freedom of choice, investor autonomy, liquidity co-movement, systematic liquidity risk

JEL Classification: G04, G14, G15, G18, G41

Suggested Citation

Jain, Pawan and Mekhaimer, Mohamed A. and Spahr, Ronald W. and Sunderman, Mark, Freedom of Choice and Liquidity Co-movement (February 19, 2020). Available at SSRN: https://ssrn.com/abstract=3076533

Pawan Jain

University of Wyoming - College of Business - Department of Economics and Finance ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States

Mohamed A. Mekhaimer (Contact Author)

St. John Fisher College ( email )

3690 East Avenue
Rochester, NY 14618
United States

Ronald W. Spahr

University of Memphis - Finance ( email )

United States

Mark Sunderman

University of Memphis ( email )

United States

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