A Multi-Factor Measure for Cross-Market Liquidity Commonality

Jian-Xin Wang ()
Additional contact information
Jian-Xin Wang: University of Technology Sydney

No 230, ADB Economics Working Paper Series from Asian Development Bank

Abstract: Liquidity commonality is defined as liquidity co-movements across assets or markets. In the current literature, it is measured relative to a single factor, i.e., the average liquidity across assets or markets. However, liquidity co-movements may not be fully captured by this single factor. Other factors, e.g., aggregate return and volatility, may also contribute to liquidity co-movements. Using Asian stock markets as an example, this paper shows that cross-market liquidity commonality is much higher when measured relative to a set of regional and global factors instead of the single factor. Over the sample period from January 2000 to April 2010, cross-market commonality explains around 9% of daily liquidity variations for Asian emerging markets, and around 14% of daily liquidity variations for Asian developed markets. When measured relative to the average regional liquidity, these estimates are less than 2%, similar to those in existing studies. The paper finds that regional factors affect liquidity commonality through shocks in liquidity and volatility, while global factors affect liquidity commonality through return and volatility. Cross-market liquidity commonality in Asia increased significantly during and after the recent global financial crisis.

Keywords: Asian stock markets; liquidity commonality; market factors; liquidity variations; global financial crisis (search for similar items in EconPapers)
JEL-codes: G14 G15 G18 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2010-10-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.adb.org/publications/multi-factor-meas ... iquidity-commonality Full text (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:adbewp:0230

Access Statistics for this paper

More papers in ADB Economics Working Paper Series from Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines. Contact information at EDIRC.
Bibliographic data for series maintained by Orlee Velarde ().