Market-wide liquidity co-movements, volatility regimes and market cap sizes

Renaud Beaupain, Pierre Giot and Mikael Petitjean

No 2006102, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Liquidity co-movements are studied within three different market capitalization indices, each made up of 100 NYSE stocks. Long-run liquidity co-movements are quantified in each class and compared to short-run liquidity co-movements. To condition the analysis of systematic liquidity upon index volatility, three regimes of volatility are defined using the Markov-switching methodology. Our results show that the magnitude of liquidity co-movements is on average positively related to the market capitalization of the index. There are significant differences between short-run and long-run liquidity comovements, and between spread-based measures and depth-based measures. Finally, the volatility regime bears on the liquidity co-movements relationships.

Date: 2006-10
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