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Liquidity commonality and the intervalling effect

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  • David Hillier
  • Joe Hillier
  • Khine Kyaw

Abstract

Past studies of liquidity commonality have reported conflicting findings regarding the relationship between market liquidity and firm size. The present paper provides empirical evidence that underlying estimation problems might be responsible for these results. We develop a model of information and spreads that provides some insights into the firm size–liquidity relationship. Our empirical evidence confirms the main testable implications of the model and presents evidence that the presence and strength of common covariability in liquidity depends upon the interval over which liquidity movements are measured. These intervalling effects are caused by delays in information being incorporated into bid and ask spreads.

Suggested Citation

  • David Hillier & Joe Hillier & Khine Kyaw, 2007. "Liquidity commonality and the intervalling effect," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 47(3), pages 495-512, September.
    • Handle: RePEc:bla:acctfi:v:47:y:2007:i:3:p:495-512
    DOI: 10.1111/j.1467-629X.2007.00214.x
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    References listed on IDEAS

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    3. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2000. "Commonality in liquidity," Journal of Financial Economics, Elsevier, vol. 56(1), pages 3-28, April.
    4. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    5. Lesmond, David A. & Schill, Michael J. & Zhou, Chunsheng, 2004. "The illusory nature of momentum profits," Journal of Financial Economics, Elsevier, vol. 71(2), pages 349-380, February.
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    Cited by:

    1. Syeda Hina Zaidi & Ramona Rupeika-Apoga, 2021. "Liquidity Synchronization, Its Determinants and Outcomes under Economic Growth Volatility: Evidence from Emerging Asian Economies," Risks, MDPI, vol. 9(2), pages 1-20, February.

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