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Commonality in Liquidity in the Context of Different Trading Systems: Evidence from an Emerging Market

Author

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  • Mohammad Tayeh

    (Department of Finance, School of Business, The University of Jordan, Amman 11942, Jordan.)

Abstract

We offer hitherto unpublished evidence of the impact of different trading systems on commonality in liquidity from an emerging market i.e., The Amman Stock Exchange. We argue that the degree of responsiveness of individual stock's liquidity to changes in market-wide liquidity will vary before and after the automation of a trading system, due to the differences in market structure. In general, the results show different sensitivities in the stock liquidity to changes in market-wide liquidity on both trading systems; the mean coefficient of concurrent market-wide liquidity on an electronic trading system is larger than that on a floor trading system. We also provide evidence on the existence of size effect in commonality. However, regardless of the size pattern revealed in commonality, the liquidity of firms in electronic trading system shows a stronger response to changes in market-wide liquidity. Finally, the results show the existence of commonality within the same industry, which is also stronger after the automation of a trading system. The above results imply that the floor trading system is less vulnerable to the information asymmetry problem.

Suggested Citation

  • Mohammad Tayeh, 2016. "Commonality in Liquidity in the Context of Different Trading Systems: Evidence from an Emerging Market," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1344-1353.
    • Handle: RePEc:eco:journ1:2016-04-07
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    References listed on IDEAS

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    1. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2007. "Liquidity and Expected Returns: Lessons from Emerging Markets," The Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 1783-1831, November.
    2. Acharya, Viral V. & Pedersen, Lasse Heje, 2005. "Asset pricing with liquidity risk," Journal of Financial Economics, Elsevier, vol. 77(2), pages 375-410, August.
    3. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    4. Paul Brockman & Dennis Y. Chung, 2002. "Commonality in Liquidity: Evidence from an Order‐Driven Market Structure," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(4), pages 521-539, December.
    Full references (including those not matched with items on IDEAS)

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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.
    2. Mohammad Tayeh, 2016. "Determinants of Market Liquidity: Evidence from the Jordanian Stock Market," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(10), pages 48-59, October.
    3. Majd Iskandrani & Asma'a Al-Amarneh, 2017. "The Effect of Ownership Composition on Stock's Liquidity: Evidence from Weak Corporate Governance Setting," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 676-683.

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    More about this item

    Keywords

    Liquidity; Commonality; Market Microstructure; Information Asymmetry; Floor Trading System; Electronic Trading Systems;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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