Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments June 2012 erstellt
Description:
We provide a simple theoretical analysis based on Kyle's (1985) framework, and demonstrate how stock price synchronicity can affect the adverse information risk that market makers face and therefore the liquidity of the stock. Our empirical evidence is consistent with our theoretical conjecture. We find that stocks which co-move more with the market index have higher liquidity, computed based on effective spread, price impact or Amihud illiquidity measures. The results are obtained after controlling for cross-sectional differences in firm size, price levels, total and idiosyncratic volatilities, and are robust to both Samp;P and non Samp;P index stocks. Besides market co-movement, industry wide component in returns also reduces the adverse selection risk and improves the liquidity. We also find results related to indexing effect. Following the addition to the Samp;P 500, a firm that experiences an increase in co-movement with the market is more likely to be accompanied by an improvement in liquidity