Yu-Jane Liu and
Journal of Financial Markets, 2021, vol. 53, issue C
We empirically show that stock-level margin trading commoves significantly with market-aggregate margin trading even after controlling for market return and market-wide liquidity. The commonality during the deleveraging process is more pronounced than when leverage increases, and deleveraging commonality contributes to the decline in stock liquidity and heightened surges in liquidity commonality. We also find that market-aggregate margin trading exerts a much larger impact on selling and investors’ order submission strategies than its stock-level counterpart during market crashes. Overall, recognizing the existence of commonality offers a simple and alternative way to think about the systematic risk associated with leverage trading.
Keywords: Deleveraging commonality; Leverage; Liquidity; Market resiliency (search for similar items in EconPapers)
JEL-codes: G12 G15 G4 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:53:y:2021:i:c:s1386418120300513
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