Commonality in Liquidity Across International Borders: Evidence from Futures Markets

Frino, Alessandro; Mollica, Vito; Zhou, Zeyang

doi:10.1002/fut.21663

Cited by 14 publications

(8 citation statements)

References 37 publications

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“…As discussed earlier, all five contracts have differing levels of liquidity, and this liquidity varies depending on proximity to expiry because of time-to-expiry effects (see Frino & McKenzie, 2002;Frino, Mollica, & Zhou, 2014). Price effects can behave differently in trading days with high turnover compared with days of lower trading activity (Chan & Lakonishok, 1993;Keim & Madhavan, 1998).…”

Section: Empirical Methodsmentioning

confidence: 97%

Are Hedgers Informed? An Examination of the Price Impact of Large Trades in Illiquid Agricultural Futures Markets

Frino

Lepone

Mollica

et al. 2016

Journal of Futures Markets

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The "received" view in the finance literature is that hedgers are uninformed traders who use futures to fix future price movements and prevent losses from unexpected and unknown fluctuations in the purchase or sale price of a commodity. In this paper, we examine transactions executed by large traders in a relatively illiquid deliverable agricultural (grain) futures market where most transactions are executed by hedgers. We provide evidence that the price impact of large buyer-initiated transactions is permanent, consistent with the proposition that they are executed by traders perceived to be informed. We also provide evidence that the price impact of large buyer-initiated trades is greatest around announcements related to the underlying commodity-corroborating our conclusion that they are executed by traders perceived to be informed. This evidence is contrary to the "received" view in the literature that hedgers are uninformed, and implies that large long hedgers in agricultural futures markets are informed.

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Section: Empirical Methodsmentioning

confidence: 97%

Are Hedgers Informed? An Examination of the Price Impact of Large Trades in Illiquid Agricultural Futures Markets

Frino

Lepone

Mollica

et al. 2016

Journal of Futures Markets

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“…Research on other asset classes remains limited (Pu, 2009;Cao and Wei, 2010;Marshall et al, 2013;Verousis et al, 2016). Another underdeveloped yet important research area is commonality in liquidity across different markets (Chordia et al, 2005;Pu, 2009;Mancini et al, 2013;Frino et al, 2014).…”

Section: Introductionmentioning

confidence: 99%

Commonality in liquidity across options and stock futures markets

Benzennou

Gwilym

Williams

2020

Finance Research Letters

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This study investigates the existence of common factors driving liquidity across different markets during a crisis period. The evidence suggests that liquidity across different European options and stock futures markets co-moves. This implies the existence of limits to the potential for liquidity risk management via options and stock futures because both markets experience simultaneous liquidity shocks. These findings are relevant to investors when timing their hedging, speculation, or arbitrage strategies.

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“…This is a topical aspect of big data analysis in financial econometrics, and efforts to improve the understanding of liquidity evolution and co-evolution in the asset cross-section have recently been a focal issue of studies in equities, [HS01,KLVD12,RSWSZ13,SDS13], commodities and futures [FMZ14,MNV13] and foreign exchange and bond markets [HJS14].…”

Section: Introductionmentioning

confidence: 99%

“…To this end, recent studies have focused on summarising the massive LOB data sets for each asset over time through either parametric time-series models, empirical estimates of liquidity measures or some combination of both, see for instance [MNV13], [FMZ14] and [SDS13].…”

Section: Introductionmentioning

confidence: 99%

Liquidity commonality does not imply liquidity resilience commonality: a functional characterisation for ultra-high frequency cross-sectional LOB data

Panayi

Peters

Kosmidis³

2015

Quantitative Finance

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We present a large-scale study of commonality in liquidity and resilience across assets in an ultra high-frequency (millisecond-timestamped) Limit Order Book (LOB) dataset from a pan-European electronic equity trading facility. We first show that extant work in quantifying liquidity commonality through the degree of explanatory power of the dominant modes of variation of liquidity (extracted through Principal Component Analysis) fails to account for heavy tailed features in the data, thus producing potentially misleading results. We employ Independent Component Analysis, which both decorrelates the liquidity measures in the asset cross-section, but also reduces higher-order statistical dependencies.To measure commonality in liquidity resilience, we utilise a novel characterisation proposed by [PPDZ14] for the time required for return to a threshold liquidity level. This reflects a dimension of liquidity that is not captured by the majority of liquidity measures and has important ramifications for understanding supply and demand pressures for market makers in electronic exchanges, as well as regulators and HFTs. When the metric is mapped out across a range of thresholds, it produces the daily Liquidity Resilience Profile (LRP) for a given asset. This daily summary of liquidity resilience behaviour from the vast LOB dataset is then amenable to a functional data representation. This enables the comparison of liquidity resilience in the asset crosssection via functional linear sub-space decompositions and functional regression. The functional regression results presented here suggest that market factors for liquidity resilience (as extracted through functional principal components analysis) can explain between 10 and 40% of the variation in liquidity resilience at low liquidity thresholds, but are less explanatory at more extreme levels, where individual asset factors take effect.

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Commonality in Liquidity Across International Borders: Evidence from Futures Markets

Cited by 14 publications

References 37 publications

Are Hedgers Informed? An Examination of the Price Impact of Large Trades in Illiquid Agricultural Futures Markets

Are Hedgers Informed? An Examination of the Price Impact of Large Trades in Illiquid Agricultural Futures Markets

Commonality in liquidity across options and stock futures markets

Liquidity commonality does not imply liquidity resilience commonality: a functional characterisation for ultra-high frequency cross-sectional LOB data

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