Liquidity Commonality Beyond Best Prices

Kempf, Alexander; Mayston, Daniel

doi:10.1111/j.1475-6803.2008.00230.x

Cited by 52 publications

(31 citation statements)

References 32 publications

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“…For instance, Chordia et al (2000) construct a systematic liquidity factor and explore the extent to which it can explain individual liquidity across stocks (see also Chung, 2002, 2006;Hasbrouck and Seppi, 2001;Korajczyk and Sadka, 2008). Furthermore, Kempf and Mayston (2008), Rakowski and Beardsley (2008) and Visaltanachoti et al (2008) examine liquidity commonality along the order book, while Dunne et al (2011) document substantial common movements in returns, order flows and liquidity for the Athens Stock Exchange. Despite the significant interest in liquidity commonality for stocks, this issue has remained relatively underexplored in the case of options.…”

Section: Introductionmentioning

confidence: 99%

Commonality in equity options liquidity: evidence from European Markets

Verousis

Gwilym

Voukelatos

2016

The European Journal of Finance

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This paper examines the commonality in liquidity for individual equity options trading at NYSE LIFFE. We use high-frequency data to construct a novel index of liquidity commonality and we find that it can explain a substantial proportion of the liquidity variation of individual options.The explanatory power of the common liquidity factor is more pronounced during periods of higher implied volatility at the market level. The common factor's impact on individual options' liquidity is found to depend on the options' idiosyncratic characteristics, while there is limited evidence of systematic liquidity spillover effects among the NYSE LIFFE exchanges.JEL Classifications: G12; G19

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Section: Introductionmentioning

confidence: 99%

Commonality in equity options liquidity: evidence from European Markets

Verousis

Gwilym

Voukelatos

2016

The European Journal of Finance

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“…Liquidity commonality in the Frankfurt Stock Exchange is analysed by Kempf and Mayston (2008) using intraday limit order book data for the 30 constituents of the DAX30, from January 2, 2004 to March 31, 2004. Since liquidity at the inside spread only determines the systematic liquidity risk of small and medium trades, they expand the existing literature by studying commonality in liquidity beyond best prices, which determines the systematic liquidity risk of large trades.…”

Section: Liquidity Commonalitymentioning

confidence: 99%

Systematic liquidity: commonality and inter-temporal variation in the Portuguese stock market

2015

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The aim of this paper is to study systematic liquidity at the Euronext Lisbon Stock Exchange. The motivation for this research is provided by the growing interest in financial literature about stock liquidity and the implications of commonality in liquidity for asset pricing since it could represent a source of non-diversifiable risk. Namely, it is analysed whether there exist common factors that drive the variation in individual stock liquidity and the causes of the inter-temporal variation of aggregate liquidity. Monthly data for the period between January 1988 and December 2011 is used to compute some of the most used proxies for liquidity: bid-ask spreads, turnover rate, trading volume, proportion of zero returns and the illiquidity ratio. Following Chordia et al. (2000) methodology, some evidence of commonality in liquidity is found in the Portuguese stock market when the proportion of zero returns is used as a measure of liquidity. In relation to the factors that drive the inter-temporal variation of the Portuguese stock market liquidity, the results obtained within a VAR framework suggest that changes in real economy activity, monetary policy (proxied by changes in monetary aggregate M1) and stock market returns play an important role as determinants of commonality in liquidity.

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“…As a matter of fact, most of the previous work has focussed on liquidity commonalities across stocks in both hybrid and fully automated markets and has tried to relate this commonality to the market structure of the exchange or the inclusion of the stocks in indexes. Recent papers along this line of research include Chordia et al (2001), Hasbrouck and Seppi (2001), Brockman and Chung (2002), Hansch (2003), Bauer (2004), Coughenour and Saad (2004), Domowitz et al (2005), Kempf and Mayston (2008), and Amihud et al (2006). In contrast, we focus on the commonalities exhibited by price-depth pairs in stock specific order books.…”

Section: Introductionmentioning

confidence: 91%