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Media type:
E-Article
Title:
Liquidity Commonality and its Causes: Evidence from the Korean Stock Market*
Contributor:
Choe, Hyuk;
Yang, Cheol‐Won
Published:
Wiley, 2010
Published in:
Asia-Pacific Journal of Financial Studies, 39 (2010) 5, Seite 626-658
Language:
English
DOI:
10.1111/j.2041-6156.2010.01025.x
ISSN:
2041-9945;
2041-6156
Origination:
Footnote:
Description:
AbstractThis paper investigates the causes of liquidity commonality. We consider information asymmetry, volatility, utilitarian trading interest, style‐based trading, inventory cost, and investor sentiment as potential candidates. Our empirical analysis shows that greater information asymmetry causes higher liquidity commonality. The significant effect of the order imbalance beta supports our volatility hypothesis as a cause of liquidity commonality. Program trading and the KOSPI200 index dummy are positively related to liquidity commonality, which is consistent with the style‐based trading hypothesis. Higher individual trading is associated with higher liquidity commonality, which means that investor sentiment operates in the Korean market. However, volume beta and return beta, as proxies for the utilitarian trading effect and the inventory cost, respectively, are insignificantly related to liquidity commonality.