Measuring liquidity commonality LUPIN.pdf (1.34 MB)
Measuring liquidity commonality in financial markets
journal contribution
posted on 2020-03-30, 12:33 authored by Chenlu Li, Baibing LiBaibing Li, Kai-Hong TeeKai-Hong TeeThis paper contributes to the literature by developing a new methodology, termed as the beta index, for measuring liquidity commonality in financial markets, that is derived from the dynamics of liquidity co-movements. We show that computing the beta index is a straightforward process. In addition, not only is the proposed beta index more efficient in controlling for confounding factors and addressing the associated statistical inference issues, but also it will enhance the accuracy of estimation. We apply the beta index to track the liquidity commonality in the foreign exchange market over the study period and identify important financial and economic events that caused liquidity commonality. We detect periods of high and low liquidity commonalities that especially would benefit active market traders who frequently rebalance portfolios and require knowledge of liquidity commonality as an input to give an important early signal and implication on diversification benefit.
History
School
- Business and Economics
Department
- Business
- Economics
Published in
Quantitative FinanceVolume
20Issue
9Pages
1553 - 1566Publisher
Taylor & Francis (Routledge)Version
- AM (Accepted Manuscript)
Rights holder
© Informa UK Limited, trading as Taylor & Francis GroupPublisher statement
This is an Accepted Manuscript of an article published by Taylor & Francis in Quantitative Finance on 20 April 2020, available online: http://www.tandfonline.com/10.1080/14697688.2020.1744698.Acceptance date
2020-03-13Publication date
2020-04-20Copyright date
2020ISSN
1469-7688eISSN
1469-7696Publisher version
Language
- en