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The Propagation of Shocks Across International Equity Markets: A Microstructure Perspective

Bongaerts, Dion and Roll, Richard and Rösch, Dominik and van Dijk, Mathijs and Yuferova, Darya (2014) The Propagation of Shocks Across International Equity Markets: A Microstructure Perspective. Social Science Working Paper, 1393. California Institute of Technology , Pasadena, CA. (Unpublished)

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We study the high-frequency propagation of shocks across international equity markets. We identify intraday shocks to stock prices, liquidity, and trading activity for 12 equity markets around the world based on non-parametric jump statistics at the 5-minute frequency from 1996 to 2011. Shocks to prices are prevalent and large, with regular spillovers across markets – even within the same 5-minute interval. We find that price shocks are predominantly driven by information rather than liquidity. Consistent with the information channel, price shocks do not revert and often occur around macroeconomic news announcements. Liquidity shocks tend to be isolated events that are neither associated with price shocks nor with liquidity shocks on other markets. Our results challenge the widespread view that liquidity plays an important role in the origination and propagation of financial market shocks.

Item Type:Report or Paper (Working Paper)
Additional Information:Revised July 2015. We are grateful to Yakov Amihud, Torben Andersen, Joachim Grammig, Charles-Albert Lehalle, Francis Longstaff, Albert Menkveld, Asani Sarkar, Ramabhadran Thirumalai, Michel van der Wel, Christian Voight, Avi Wohl, seminar participants at Erasmus University, and conference participants at the 5th Emerging Markets Finance Conference in Bombay, the 2014 Extreme Events in Finance conference in Royaumont, the 8th Financial Risks International Forum in Paris, the 2014 German Finance Association meeting in Karlsruhe, and the 2014 INFER workshop in Bordeaux for helpful comments. We thank Michel van der Wel for sharing the U.S. macro news announcements data. Van Dijk gratefully acknowledges financial support from the Vereniging Trustfonds Erasmus Universiteit Rotterdam and from the Netherlands Organisation for Scientific Research through a “Vidi” grant. This work was carried out on the National e-infrastructure with the support of SURF Foundation. We thank OneMarket Data for the use of their OneTick software.
Group:Social Science Working Papers
Funding AgencyGrant Number
Erasmus University RotterdamUNSPECIFIED
Nederlandse Organisatie voor Wetenschappelijk Onderzoek (NWO)UNSPECIFIED
Series Name:Social Science Working Paper
Issue or Number:1393
Record Number:CaltechAUTHORS:20170726-114925483
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79418
Deposited By: Hanna Storlie
Deposited On:07 Aug 2017 21:27
Last Modified:03 Oct 2019 18:19

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