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Commonality in liquidity: Evidence from India’s National Stock Exchange

Gaurav Kumar and Arun Kumar Misra

Journal of Asian Economics, 2018, vol. 59, issue C, 1-15

Abstract: This article investigates commonality in liquidity on India’s National Stock Exchange (NSE) using high frequency limit order book data. The analysis pertains to 50 mid-cap stocks for the period April–July 2015. A comprehensive record of more than 100 million orders and trades is aggregated at 30 min intervals to construct a variety of spread and depth measures of liquidity. The empirical analysis shows that individual stock liquidity co-moves to a high degree with market liquidity and industry liquidity. Market-wide commonality is found to be stronger than industry-wide commonality for most liquidity measures. Commonality is further found to be greater in heavy manufacturing than in consumer goods, financial services, or infrastructure sectors. For most stocks, up markets show a stronger degree of commonality than down markets. Finally, short-run commonality is found to exceed long-run commonality, which suggests greater presence of noise traders in short run.

Keywords: Liquidity commonality; Market microstructure; National stock exchange; India (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.asieco.2018.09.001

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