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Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/174958
Uncovering the time-varying relationship between commonality in liquidity and volatility
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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.
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CHULIÁ SOLER, Helena, KOSER, Christoph and URIBE GIL, Jorge Mario. Uncovering the time-varying relationship between commonality in liquidity and volatility. International Review of Financial Analysis. 2020. Vol. 69, num. 101466, pags. 1-9. ISSN 1057-5219. [consulted: 10 of August of 2026]. Available at: https://hdl.handle.net/2445/174958