Comovement, Liquidity and Asymmetries
Journal of Investment Management (JOIM), Forthcoming
38 Pages Posted: 28 Dec 2019
Date Written: November 29, 2019
Substantially increased institutional investing and index trading in the U.S. stock market have a meaningful impact on the mechanical relationship between return co-movement and liquidity, which can be quantified by a power law function and explained by a liquidity supply model. Three well-documented asymmetries (asymmetric volume, asymmetry in non-market volatility, and positive skewness for individual stocks) are disappearing with increased basket trading, however, asymmetric correlation survives.
Keywords: Co-movement, Liquidity, Asymmetric Volume, Asymmetric Correlation, Index Trading
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