The causality between liquidity and volatility in the Polish stock market

Barbara Będowska-Sójka and Agata Kliber

Finance Research Letters, 2019, vol. 30, issue C, 110-115

Abstract: We study dependencies between liquidity and volatility in the causality framework for stocks listed on the Warsaw Stock Exchange. Using Toda-Yamamoto and Granger causality tests we find bidirectional causality between the measures. The causal liquidity-volatility relation is more often observed than volatility-liquidity one, and both relations are frequently asymmetric. The directional spillover index suggests, that the fraction of forecast error variance due to the shock in other measure is much smaller than the response to own shocks. The choice of proxies matters: among different alternatives we find that high-low range is most often Granger cause for volatility.

Keywords: Volatility; Conditional variance; Realized variance; Illiquidity; Range; Granger causality (search for similar items in EconPapers)
JEL-codes: C58 G12 G14 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:30:y:2019:i:c:p:110-115

DOI: 10.1016/j.frl.2019.04.008

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