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The dynamics of low-frequency liquidity measures: The developed versus the emerging market

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  • Będowska-Sójka, Barbara

Abstract

This paper examines the commonality in liquidity measures in two stock markets at different stage of development, the Deutsche Börse and the Warsaw Stock Exchange. Using daily data from 2001 to 2016 we show that for the stocks listed on the developed market there exists a strong interaction between Amihud illiquidity and high-low spreads within the whole sample. On the emerging market the interdependency between these measures strengthen as the stock market matures. Since 2008 the aggregate liquidity measures from both markets behave similarly suggesting that commonality in liquidity is strongly affected by the global risk factors. Although the transaction costs on both markets show similar dynamics, on the emerging market they are significantly higher. Both volatility and spreads induce an increase in trading activity. Higher volatility influences spreads.

Suggested Citation

  • Będowska-Sójka, Barbara, 2019. "The dynamics of low-frequency liquidity measures: The developed versus the emerging market," Journal of Financial Stability, Elsevier, vol. 42(C), pages 136-142.
    • Handle: RePEc:eee:finsta:v:42:y:2019:i:c:p:136-142
    DOI: 10.1016/j.jfs.2019.05.006
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    Cited by:

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    2. Będowska-Sójka, Barbara & Echaust, Krzysztof, 2020. "What is the best proxy for liquidity in the presence of extreme illiquidity?," Emerging Markets Review, Elsevier, vol. 43(C).

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    More about this item

    Keywords

    Liquidity; High-low range; High-low spread; Amihud illiquidity; VIX; Turnover;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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