Commonality in FX Liquidity: High-Frequency Evidence

13 Pages Posted: 10 Apr 2020 Last revised: 14 Apr 2020

See all articles by Ahmet Sensoy

Ahmet Sensoy

Borsa Istanbul

Sevcan Uzun

Central Bank of Turkey

Brian M. Lucey

Trinity Business School, Trinity College Dublin; University of Sydney Business School; Ho Chi Minh City University of Economics and Finance; Jiangxi University of Finance and Economics

Date Written: March 23, 2020

Abstract

We test the existence and reveal the main properties of commonality in liquidity for the foreign exchange (FX) markets at the high-frequency level. Accordingly, commonality in FX liquidity exists even at the high-frequency level and it has been gradually increasing over the last few years. Unlike ECB, monetary policy announcement made by Fed significantly increases this commonality. Moreover, commonality in FX liquidity has a significant positive impact on the commonality in FX return series, indicating that an increase in the intraday systematic liquidity risk might trigger a negative aggregate liquidity-return spiral in the FX markets.

Keywords: Commonality in liquidity, foreign exchange, high-frequency trading, transaction cost, systematic risk

JEL Classification: D23, D82, F31, G15, G23

Suggested Citation

Sensoy, Ahmet and Uzun, Sevcan and Lucey, Brian M., Commonality in FX Liquidity: High-Frequency Evidence (March 23, 2020). Available at SSRN: https://ssrn.com/abstract=3559279 or http://dx.doi.org/10.2139/ssrn.3559279

Ahmet Sensoy

Borsa Istanbul ( email )

Reşitpaşa mh.
Tuncay Artun cd.
Istanbul, 34467
Turkey

Sevcan Uzun

Central Bank of Turkey ( email )

Ankara
Turkey

Brian M. Lucey (Contact Author)

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Ho Chi Minh City University of Economics and Finance ( email )

59C Nguyen Dình Chieu
6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

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