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Title: Uncovering the time-varying relationship between commonality in liquidity and volatility
Author: Chuliá Soler, Helena
Koser, Christoph
Uribe Gil, Jorge Mario
Others: Universitat de Barcelona
Universitat Oberta de Catalunya (UOC)
Keywords: systemic liquidity
market liquidity
spillover index
Granger causality
financial crisis
variance decomposition
Issue Date: 18-Sep-2019
Publisher: International Review of Financial Analysis
Citation: Chuliá Soler, H., Koser, C. & Uribe, J.M. (2020). Uncovering the time-varying relationship between commonality in liquidity and volatility. International Review of Financial Analysis, 69(), 1-9. doi: 10.1016/j.irfa.2020.101466
Project identifier: info:eu-repo/grantAgreement/ECO2015-66314-R
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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.
Language: English
ISSN: 1057-5219MIAR
Appears in Collections:Articles

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