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Liquidity commonality in order-driven trading: evidence from the Athens Stock Exchange

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  • Panagiotis Anagnostidis
  • George Papachristou
  • Nikos S. Thomaidis

Abstract

We examine the presence of liquidity commonality in the order-driven Athens Stock Exchange (ASE). Unlike the majority of liquidity commonality studies that focus on the bid--ask spread, our analysis extends deeper in the Limit Order Book, providing insight on the price impact of both small and large trades. We utilize a 6-month FTSE/ATHEX-20 intraday data set to estimate the liquidity factor model of Chordia et al. (2000). To this end, we conduct single-equation analysis as well as panel data analysis with the use of two-way clustered errors, correcting for simultaneous firm and time correlations. Moreover, we apply standard principal component analysis on stock liquidities to extract the marketwide liquidity component. We find that liquidity commonality is low at the bid--ask spread, whereas it increases deeper in the book; consequently, large traders face liquidity risks associated with both individual stock and marketwide illiquidity. Moreover, our empirical evidence hints that liquidity commonality is asynchronous, suggesting that the ASE trading process includes various levels of information speed. Our analysis contributes to the understanding of liquidity commonality in order-driven trading, especially in emerging markets like the ASE where trading activity is limited and information speed is low.

Suggested Citation

  • Panagiotis Anagnostidis & George Papachristou & Nikos S. Thomaidis, 2016. "Liquidity commonality in order-driven trading: evidence from the Athens Stock Exchange," Applied Economics, Taylor & Francis Journals, vol. 48(22), pages 2007-2021, May.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:22:p:2007-2021
    DOI: 10.1080/00036846.2015.1111991
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    Cited by:

    1. Tripathi, Abhinava & Dixit, Alok & Vipul,, 2021. "Liquidity commonality in extreme quantiles: Indian evidence," Finance Research Letters, Elsevier, vol. 38(C).
    2. Kumar, Gaurav & Misra, Arun Kumar, 2018. "Commonality in liquidity: Evidence from India’s National Stock Exchange," Journal of Asian Economics, Elsevier, vol. 59(C), pages 1-15.
    3. Anagnostidis, Panagiotis & Fontaine, Patrice, 2020. "Liquidity commonality and high frequency trading: Evidence from the French stock market," International Review of Financial Analysis, Elsevier, vol. 69(C).
    4. Abhinava Tripathi & Vipul & Alok Dixit, 0. "Liquidity commonality beyond best prices: Indian evidence," Journal of Asset Management, Palgrave Macmillan, vol. 0, pages 1-19.
    5. Abhinava Tripathi & Vipul & Alok Dixit, 2020. "Liquidity commonality beyond best prices: Indian evidence," Journal of Asset Management, Palgrave Macmillan, vol. 21(4), pages 355-373, July.

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