Liquidity commonality in the london stock exchange

2016

We offer hitherto unpublished evidence of the impact of different trading systems on commonality in liquidity from an emerging market i.e., The Amman Stock Exchange. We argue that the degree of responsiveness of individual stock's liquidity to changes in market-wide liquidity will vary before and after the automation of a trading system, due to the differences in market structure. In general, the results show different sensitivities in the stock liquidity to changes in market-wide liquidity on both trading systems; the mean coefficient of concurrent market-wide liquidity on an electronic trading system is larger than that on a floor trading system. We also provide evidence on the existence of size effect in commonality. However, regardless of the size pattern revealed in commonality, the liquidity of firms in electronic trading system shows a stronger response to changes in market-wide liquidity. Finally, the results show the existence of commonality within the same industry, wh...

Journal of Applied Business Research (JABR), 2015

This study investigates commonality in liquidity in Tunisia, an order-driven, emerging stock market. We analyze the impact of information flow on the relationship between market liquidity and liquidity of securities, in addition to firm size and industry determinants. The effect of liquidity commonality on the liquidity of securities depends on firm size. The effect of market-wide commonality on liquidity is found to be stronger than that of industry-wide commonality. Our results show that public and private information flows improve liquidity. Systematic trading volume dominates systematic order imbalance in explaining liquidity; however, this effect is lesser compared to that of market liquidity.

SSRN Electronic Journal, 2011

In this paper, we examine four specific hypotheses relating to commonality in liquidity on the Chinese stock markets. These hypotheses are: (a) that market-wide liquidity determines liquidity of individual stocks; (b) that liquidity varies with firm size; (c) that sectoral-based liquidity affects individual stock liquidities differently; and (d) that commonality in liquidity has an asymmetric effect. Based on a two-year dataset on the Shanghai and Shenzhen stock exchanges comprising of over 34 and 48 million transactions respectively, we find strong support for commonality in liquidity and a greater influence of industry-wide liquidity in explaining liquidity of individual stocks. Moreover, our results suggest that of the three main sectorsfinancial, industrial, and resources-industrial sector"s liquidity is most important in explaining individual stock liquidities. Finally, we do not find any evidence of size effects, and document an asymmetric effect of market-wide liquidity on liquidity of individual stocks.

International Journal of Economics and Financial Issues, 2016

We offer hitherto unpublished evidence of the impact of different trading systems on commonality in liquidity from an emerging market i.e., The Amman Stock Exchange. We argue that the degree of responsiveness of individual stock’s liquidity to changes in market-wide liquidity will vary before and after the automation of a trading system, due to the differences in market structure. In general, the results show different sensitivities in the stock liquidity to changes in market-wide liquidity on both trading systems; the mean coefficient of concurrent market-wide liquidity on an electronic trading system is larger than that on a floor trading system. We also provide evidence on the existence of size effect in commonality. However, regardless of the size pattern revealed in commonality, the liquidity of firms in electronic trading system shows a stronger response to changes in market-wide liquidity. Finally, the results show the existence of commonality within the same industry, which ...

Organizations and Markets in Emerging Economies, 2019

Liquidity commonality and the co-movements in trading costs related to such commonality have remarkable implications in market microstructure. Analyzing and identifying such commonality will enable the investor and policy maker to discover evidence regarding the inventory risks and asymmetric information in uencing individual securities’ liquidity. Thus, this study aims at documenting the liquidity commonality and measuring its extent in the Indian stock market. Employing fourteen liquidity measures a ributed to the cost, quantity, time, and multidimensional aspects of liquidity, it empirically proves the existence of co-movements among market-wide liquidity and the individual securities’ liquidity. The study also shows the presence of a size effect in liquidity commonality in Indian stock market. It is found that the slope coefficient indicating the interface between market-wide liquidity and individual securities’ liquidity generally increases with size.

International Review of Financial Analysis

We study liquidity on the London Stock Exchange. We find that the average bid-ask spread declines, but that the skewness of the spread increases. These results are robust to firm size, trading volume and price level. Our findings hold when the bid-ask spread is estimated utilising high frequency data. We find that the bid-ask spread prior to earnings announcements dates is significantly higher than that of post earnings announcements, suggesting that asymmetric information has driven the increase in liquidity skewness. We also find that the effect of earnings announcements is more pronounced in the 2007 global financial crisis, consistent with the notion that extreme market downturns amplify asymmetric information. Our overall evidence also implies that increased competition and transparent trading environments limit market makers' abilities to cross-subsidize bid-ask spreads between periods of high and low levels of asymmetric information.

Global Business Review, 2020

This study investigates the degree to which movements in stock liquidity is determined by common underlying factors in a large emerging market, India. This degree is called commonality. Commonality has been measured for NIFTY50 stocks using high frequency data across a variety of liquidity measures. This study empirically verifies the relative strength of market- and industry-wide liquidity in explaining commonality. Furthermore, the study analyses the impact of industry-wide liquidity on the liquidity of individual stocks belonging to the key industries of Indian economy, viz. consumer goods and pharma, energy, financial services, infrastructure, information technology (IT) and telecom, manufacturing and natural resources. Among all the sectors studied infrastructure, IT and telecom, manufacturing and natural resources sectors possess higher degree of Industry-wide commonality. This means fund managers find it difficult in altering a portfolio having greater exposure to these secto...

2010

2015

This paper examine empirically variables that can be significantly correlated with inter-temporal changes of measures of the individual’s securities, for example: trading volumes, number of transactions, return, volatility, arrival of new information etc. Before a study of a sample of 40 quoted securities in Tunisian financial market, on the period of February 07, 2011 until January 31, 2013, results appear conclusive. First, as expected, depth has negative correlation with all spread measures. Besides, we observe perfect positive correlations between spread measures. This shows the validity of these liquidity measures on the Tunisian stock market. Furthermore, the results suggest that volume, return and arrival of new information contribute to explain significantly the inter-temporal changes of various measures of the securities liquidity. Finally, we can consider, probably, the arrival of new information as a common factor for the different liquidity measures for all stocks in our...

SSRN Electronic Journal, 2000

In this paper we use the Exchange Liquidity Measure (XLM) to investigate into the time dimension of liquidity. The XLM(V) measures the cost of a roundtrip trade of size V. Besides a descriptive analysis we present the results of intraday event studies. Our objective is to measure how a liquidity shock affects the XLM measure, and how long it takes for the XLM measure to revert to a "normal" level. We analyze two sets of liquidity shocks, namely, large transactions and company-specific Bloomberg ticker news items. Applying the methodology to a sample of German stocks we find that resiliency after large transactions is high, i.e., liquidity quickly reverts to "normal" levels. We further document that large transactions are "timed". The Bloomberg ticker news items do not have a discernible effect on liquidity.