Commonality in FX liquidity: High-frequency evidence

Ahmet Sensoy, Sevcan Uzun and Brian Lucey

Finance Research Letters, 2021, vol. 39, issue C

Abstract: We test the existence and reveal the main properties of commonality in liquidity for the foreign exchange (FX) markets at the high-frequency level. Accordingly, commonality in FX liquidity exists even at the high-frequency level and it has been gradually increasing over the last few years. Moreover, commonality increases significantly before (after) ECB (Fed) monetary policy announcements. Finally, commonality in FX liquidity has a significant positive impact on the commonality in FX return series, indicating that an increase in the intraday systematic liquidity risk might trigger a negative aggregate liquidity-return spiral in the FX markets.

Keywords: Commonality in liquidity; Foreign exchange; High-frequency trading; Transaction cost; Systematic risk (search for similar items in EconPapers)
JEL-codes: D23 D82 F31 G15 G23 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:39:y:2021:i:c:s1544612320304220

DOI: 10.1016/j.frl.2020.101577

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