55 Pages Posted: 27 Feb 2007 Last revised: 29 Sep 2008
Date Written: November 1, 2006
We conduct a comprehensive study of commonality in liquidity using intraday spread and depth data from 47 stock exchanges. We find that firm-level changes in liquidity are significantly influenced by exchange-level changes across most of the world's stock exchanges. Emerging Asian exchanges have exceptionally strong commonality, while those of Latin America exhibit little if any commonality. After documenting the pervasive role of commonality within individual exchanges, we examine commonality across exchanges. We find evidence of a distinct, global component in bid-ask spreads and depths. Local (exchange-level) sources of commonality represent roughly 39 percent of the firm's total commonality in liquidity, while global sources contribute an additional 19 percent. We also investigate potential sources of exchange-level and global commonality. We show that commonality is driven by both domestic and US macroeconomic announcements.
Keywords: Liquidity, Commonality, Bid-Ask Spreads, Depths
JEL Classification: G10, G15
Suggested Citation: Suggested Citation
Brockman, Paul and Chung, Dennis Y. and Perignon, Christophe, Commonality in Liquidity: A Global Perspective (November 1, 2006). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=965807 or http://dx.doi.org/10.2139/ssrn.965807
By Kuan-hui Lee