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Title: Uncovering the time-varying relationship between commonality in liquidity and volatility [WP]
Author: Chuliá Soler, Helena
Koser, Christoph
Uribe Gil, Jorge Mario
Keywords: Liquiditat (Economia)
Mercat financer
Crisis financeres
Anàlisi de variància
Liquidity (Economics)
Capital market
Financial crises
Analysis of variance
Issue Date: 2019
Publisher: Universitat de Barcelona. Facultat d'Economia i Empresa
Series/Report no: [WP E-IR19/16]
Abstract: This study examines the dynamic linkages between commonality in liquidity in international stock markets and market volatility. Using a recently proposed liquidity measure as input in a variance decomposition exercise, we show that innovations to liquidity in most markets are induced predominately by inter-market innovations. We also find that commonality in liquidity peaks immediately after large market downturns, coinciding with periods of crisis. The results from a dynamic Granger causality test indicate that the relationship between commonality in liquidity and market volatility is bi-directional and time-varying. We show that while volatility Granger-causes commonality in liquidity throughout the entire sample period, market volatility is enhanced by commonality in liquidity only in sub-periods. Our results are helpful for practitioners and policy makers.
Note: Reproducció del document publicat a:
It is part of: IREA – Working Papers, 2019, IR19/16
Appears in Collections:Documents de treball (Institut de Recerca en Economia Aplicada Regional i Pública (IREA))

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