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Market Liquidity and Trading Activity

Chordia, Tarun and Roll, Richard and Subrahmanyam, Avanidhar (2001) Market Liquidity and Trading Activity. Journal of Finance, 56 (2). pp. 501-530. ISSN 0022-1082. doi:10.1111/0022-1082.00335.

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Previous studies of liquidity span short time periods and focus on the individual security. In contrast, we study aggregate market spreads, depths, and trading activity for U.S. equities over an extended time sample. Daily changes in market averages of liquidity and trading activity are highly volatile and negatively serially dependent. Liquidity plummets significantly in down markets. Recent market volatility induces a decrease in trading activity and spreads. There are strong day‐of‐the‐week effects; Fridays accompany a significant decrease in trading activity and liquidity, while Tuesdays display the opposite pattern. Long‐ and short‐term interest rates influence liquidity. Depth and trading activity increase just prior to major macroeconomic announcements.

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Additional Information:© 2001 the American Finance Association. We are grateful to Larry Glosten, an anonymous referee, and Rene Stulz (the editor) for insightful and constructive criticism. We also thank David Aboody, Michael Brennan, Larry Harris, Ananth Madhavan, Kevin Murphy, Narayan Naik, K.R. Subramanyam, Bob Wood, a second anonymous referee, and seminar participants at the University of Southern California, INSEAD, Southern Methodist University, MIT, the University of Chicago, University of Houston, and the London Business School for useful comments and suggestions, Ashley Wang for excellent research assistance, and Barry Dombro as well as Christoph Schenzler for help with the transactions data.
Issue or Number:2
Record Number:CaltechAUTHORS:20190502-161117822
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Official Citation:Chordia, T. , Roll, R. and Subrahmanyam, A. (2001), Market Liquidity and Trading Activity. The Journal of Finance, 56: 501-530. doi:10.1111/0022-1082.00335
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:95194
Deposited By: Tony Diaz
Deposited On:03 May 2019 14:44
Last Modified:16 Nov 2021 17:10

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