Commonality on Euronext: Do location and account type matter?

Catherine d'Hondt, Christophe Majois and Paolo Mazza ()

Post-Print from HAL

Abstract: Using a rich dataset of orders and trades for a sample of stocks listed on four Euronext markets, we apply principal component analysis and provide evidence on the existence and magnitude of commonality in returns, order flow and liquidity. We show that commonality in order flow mainly comes from foreign market members acting for their own account. Proprietary trading is a major driver in trade imbalance and return commonality. Next, we provide evidence on commonality in hidden liquidity. In contrast to commonality in visible depth that is the strongest for large firms, comovements in hidden depth seem to be stronger for small caps. We also show that commonality in returns, order flow and liquidity is not constant throughout the day. The opening of US markets is a key moment where commonality often reaches its maximum level. These findings suggest that most of the commonality is driven by foreigners, generating an increase in systematic liquidity risk, due to foreigners' similar trading behaviors, whose importance evolves throughout the day.

Keywords: Stocks (Finance); Multiple correspondence analysis (Statistics); Liquidity (Economics); International markets; Existence theorems; Euronext NV (search for similar items in EconPapers)
Date: 2015-12
References: Add references at CitEc
Citations:

Published in International Review of Financial Analysis, 2015, 42, pp.183--198. ⟨10.1016/j.irfa.2015.06.007⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Commonality on Euronext: Do location and account type matter? (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01667400

DOI: 10.1016/j.irfa.2015.06.007

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().