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Commonality in liquidity

journal contribution
posted on 2000-04-01, 00:00 authored by Tarun ChordiaTarun Chordia, R Roll, A Subrahmanyam
Traditionally and understandably, the microscope of market microstructure has focused on attributes of single assets. Little theoretical attention and virtually no empirical work has been devoted to common determinants of liquidity nor to their empirical manifestation, correlated movements in liquidity. But a wider-angle lens exposes an imposing image of commonality. Quoted spreads, quoted depth, and effective spreads co-move with market- and industry-wide liquidity. After controlling for well-known individual liquidity determinants, such as volatility, volume, and price, common influences remain significant and material. Recognizing the existence of commonality is a key to uncovering some suggestive evidence that inventory risks and asymmetric information both affect intertemporal changes in liquidity.

History

Journal

Journal of financial economics

Volume

56

Issue

1

Pagination

3 - 28

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

0304-405X

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

Copyright notice

2000, Elsevier Science S.A.

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