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Commonality in Liquidity: A Global Perspective

Published online by Cambridge University Press:  01 August 2009

Paul Brockman
Affiliation:
College of Business and Economics, Lehigh University, 621 Taylor St., Bethlehem, PA 18015. pab309@lehigh.edu
Dennis Y. Chung
Affiliation:
Faculty of Business Administration, Simon Fraser University, 8888 University Dr., Burnaby, BC Canada V5A 1S6. dychung@sfu.ca
Christophe Pérignon
Affiliation:
Department of Finance and Economics, HEC Paris, 1, Rue de la Libération, 78351 Jouy-en-Josas, France. perignon@hec.fr
Corresponding

Abstract

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% of the firm’s total commonality in liquidity, while global sources contribute an additional 19%. We also investigate potential sources of exchange-level and global commonality. We show that commonality is driven by both domestic and U.S. macroeconomic announcements.

Type
Research Articles
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2009

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