Commonality in liquidity

Chordia, Tarun; Roll, Richard; Subrahmanyam, Avanidhar

doi:10.1016/s0304-405x(99)00057-4

Cited by 1,358 publications

(1,268 citation statements)

References 32 publications

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“…A doublesort procedure indicates that cross-stock price pressure accounts for 111 to 189 of the 242 bp price impact reported in the paragraph above. In total, the results suggest that liquidity is better understood as a marketwide rather than a security-specific attribute, corroborating the results in Chordia, Roll, and Subrahmanyam (2000).…”

Section: Resultssupporting

confidence: 83%

Trading imbalances, predictable reversals, and cross-stock price pressure

Andrade

Chang

Seasholes

2008

Journal of Financial Economics

137

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We test the implications of a multi-asset equilibrium model in which a finite number of risk-averse liquidity providers accommodate non-informational trading imbalances. These imbalances generate predictable reversals in stock returns. An imbalance in one stock also affects the prices of other stocks. The magnitude of the cross-stock price pressure depends on the correlations of the stocks' underlying cash flows. The model implies that non-informational trading increases the volatility of stock returns. We confirm the model's implications using data from the Taiwan Stock Exchange. r 2008 Published by Elsevier B.V.JEL classification: G12; G15

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Section: Resultssupporting

confidence: 83%

Trading imbalances, predictable reversals, and cross-stock price pressure

Andrade

Chang

Seasholes

2008

Journal of Financial Economics

137

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“…US based studies indicate that liquidity exhibits systematic variations (Chordia et al (2000), Huberman and Halka (2001), Korajczyk and Sadka (2008)). However, commonality in liquidity across stocks is not peculiar to the NYSE's idiosyncratic market structure, it has also been detected in order only markets.…”

Section: Theory and Empirical Methodsmentioning

confidence: 99%

The asset pricing effects of UK market liquidity shocks: Evidence from tick data

Foran¹,

Hutchinson²,

O’Sullivan³

2014

International Review of Financial Analysis

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“…Empirically, Chordia, Roll, and Subrahmanyam (2000), Hasbrouck and Seppi (2001) and Huberman and Halka (2001) document that there is commonality of stocks' market liquidity, that is, market liquidity is correlated across stocks. 15 Our model shows that this commonality in market liquidity can be driven by the underlying funding liquidity of the market-making sector.…”

Section: Related Literaturementioning

confidence: 99%

Market Liquidity and Funding Liquidity＊

Brunnermeier¹,

2012

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We provide a model that links a security's market liquidity -i.e., the ease of trading it -and traders' funding liquidity -i.e., their availability of funds. Traders provide market liquidity and their ability to do so depends on their funding, that is, their capital and the margins charged by their financiers. In times of crisis, reductions in market liquidity and funding liquidity are mutually reinforcing, leading to a liquidity spiral. The model explains the empirically documented features that market liquidity (i) can suddenly dry up (i.e. is fragile), (ii) has commonality across securities, (iii) is related to volatility, (iv) experiences "flight to liquidity" events, and (v) comoves with the market. Finally, the model shows how the Fed can improve current market liquidity by committing to improve funding in a potential future crisis.

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Commonality in liquidity

Cited by 1,358 publications

References 32 publications

Trading imbalances, predictable reversals, and cross-stock price pressure

Trading imbalances, predictable reversals, and cross-stock price pressure

The asset pricing effects of UK market liquidity shocks: Evidence from tick data

Market Liquidity and Funding Liquidity＊

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