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Commonality in liquidity

Chordia, Tarun and Roll, Richard and Subrahmanyam, Avanidhar (2000) Commonality in liquidity. Journal of Financial Economics, 56 (1). pp. 3-28. ISSN 0304-405X. doi:10.1016/S0304-405X(99)00057-4.

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Traditionally and understandably, the microscope of market microstructure has focused on attributes of single assets. Little theoretical attention and virtually no empirical work has been devoted to common determinants of liquidity nor to their empirical manifestation, correlated movements in liquidity. But a wider-angle lens exposes an imposing image of commonality. Quoted spreads, quoted depth, and effective spreads co-move with market- and industry-wide liquidity. After controlling for well-known individual liquidity determinants, such as volatility, volume, and price, common influences remain significant and material. Recognizing the existence of commonality is a key to uncovering some suggestive evidence that inventory risks and asymmetric information both affect intertemporal changes in liquidity.

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Additional Information:© 2000 Elsevier Science B.V. Received 8 August 1998, Revised 27 May 1999, Available online 3 April 2000. For comments, suggestions and encouragement, we are indebted to Viral Acharya, Clifford Ball, Michael Brennan, Will Goetzmann, Roger Huang, Craig Lewis, Mike Long, Ron Masulis, Patrick Panther, Geert Rouwenhorst, Lakshmanan Shivakumar, Hans Stoll, and seminar participants at Arizona, Bocconi, INSEAD, Rice, and Yale. An anonymous referee and the editor (Bill Schwert) provided constructive suggestions that greatly improved the paper. Christoph Schenzler provided expert programming advice. The first author was supported by the Dean's Fund for Research and the Financial Markets Research Center at Vanderbilt University.
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Vanderbilt UniversityUNSPECIFIED
Subject Keywords:Liquidity; Trading costs; Co-movement; Microstructure
Issue or Number:1
Classification Code:JEL: G23; D82
Record Number:CaltechAUTHORS:20190502-140445478
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Official Citation:Tarun Chordia, Richard Roll, Avanidhar Subrahmanyam, Commonality in liquidity, Journal of Financial Economics, Volume 56, Issue 1, 2000, Pages 3-28, ISSN 0304-405X, (
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:95186
Deposited By: Tony Diaz
Deposited On:03 May 2019 21:44
Last Modified:16 Nov 2021 17:10

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