The Non-Trading Problem in Assessing Commonality in Liquidity on Emerging Stock Markets
DOI:
https://doi.org/10.12775/DEM.2018.004Keywords
CEE, commonality in liquidity, GARCH, HAC, non-trading problemAbstract
The purpose of this study is to explore commonality in liquidity on seven small emerging CEE stock markets in the Czech Republic, Hungary, Slovakia, Slovenia, Lithuania, Estonia, and Latvia, in the context of serious problems with stock illiquidity. The number of companies that reveal a substantial non-trading problem is large. A modified version of the Amihud measure is utilized as daily liquidity proxy for stocks. The OLS-HAC method and the GARCH-type models are employed to infer the patterns of commonality in liquidity. No reason has been found to support intra-market commonality in liquidity on each investigated stock exchange.
References
Adkins, L.C. (2014), Using Gretl for Principles of Econometrics. 4th Ed.Version 1.041.
Amihud, Y. (2002), Illiquidity and Stock Returns: Cross-Section and Time-Series Ef-fects, Journal of Financial Markets, 5(1), 31–56, DOI: http://dx.doi.org/10.1016/S1386-4181(01)00024-6.
Bai, M., Qin, Y. (2015), Commonality in Liquidity in Emerging Markets: Another Sup-ply-Side Explanation, International Review of Economics & Finance, 39, 90–106, DOI: http://dx.doi.org/10.1016/j.iref.2015.06.005.
Bekaert, G., Harvey, C.R., Lundblad, C. (2007), Liquidity and Expected Returns: Les-sons from Emerging Markets, Review of Financial Studies, 20(6), 1783–1831, DOI: http://dx.doi.org/10.1093/rfs/hhm030.
Będowska-Sójka, B. (2018), The Coherence of Liquidity Measures. The Evidence from the Emerging Market, Finance Research Letters, 27, 118–123, DOI: https://doi.org/10.1016/j.frl.2018.02.014.
Bollerslev, T., Wooldridge, J.M. (1992), Quasi-Maximum Likelihood Estimation and Inference in Dynamic Models with Time-Varying Covariances, Econometric Re-views, 11, 143–179, DOI: http://dx.doi.org/10.1080/07474939208800229.
Brockman, P., Chung, D.Y. (2006), Index Inclusion and Commonality in Liquidity: Evidence from the Stock Exchange of Hong Kong, International Review of Fi-nancial Analysis, 15(4–5), 291–305, DOI: http://dx.doi.org/10.1016/j.irfa.2005.09.003.
Brockman, P., Chung, D.Y., Perignon, C. (2009), Commonality in Liquidity: A Global Perspective, Journal of Financial and Quantitative Analysis, 44(4), 851–882, DOI: http://dx.doi.org/10.1017/S0022109009990123.
Campbell, J.Y., Lo, A.W., MacKinlay, A.C. (1997), The Econometrics of Financial Mar-kets, Princeton University Press, New Jersey.
Chordia, T., Roll, R., Subrahmanyam, A. (2000), Commonality in Liquidity, Journal of Financial Economics, 56, 3–28, DOI: http://dx.doi.org/10.1016/S0304-405X(99)00057-4.
Dickey, D.A., Fuller, W.A. (1981), Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root, Econometrica, 49(4), 1057–1072, DOI: http://dx.doi.org/10.2307/1912517.
Dimson, E. (1979), Risk Measurement when Shares are Subject to Infrequent Trading, Journal of Financial Economics, 7, 197–226, DOI: http://dx.doi.org/10.1016/0304-405X(79)90013-8.
Elliott, G., Rothenberg, T.J., Stock, J.H. (1996), Efficient Tests for an Autoregressive Unit Root, Econometrica, 64(4), 813–836, DOI: http://dx.doi.org/10.2307/2171846.
Engle, R.F. (1982), Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflations, Econometrica, 50, 987–1007, DOI: http://dx.doi.org/10.2307/1912773.
Fabre, J., Frino, A. (2004), Commonality in Liquidity: Evidence from the Australian Stock Exchange, Accounting and Finance, 44, 357–368, DOI: http://dx.doi.org/10.1111/j.1467-629x.2004.00117.x.
Fong, K.Y.L., Holden, C.W., Trzcinka, C. (2017), What are the Best Liquidity Proxies for Global Research?, Review of Finance, 21, 1355–1401, DOI: http://dx.doi.org/10.1093/rof/rfx003.
Foran, J., Hutchinson, M.C., O’Sullivan, N. (2015), Liquidity Commonality and Pricing in UK Equities, Research in International Business and Finance, 34, 281–293, DOI: http://dx.doi.org/10.1016/j.ribaf.2015.02.006.
Goyenko, R.Y., Holden, C.W., Trzcinka, C.A. (2009), Do Liquidity Measures Measure Liquidity?, Journal of Financial Economics, 92, 153–181, DOI: http://dx.doi.org/10.1016/j.jfineco.2008.06.002.
Hamilton, J.D. (2008), Macroeconomics and ARCH. Working Paper 14151 NBER Work-ing Paper Series, Cambridge.
Kamara, A., Lou, X., Sadka, R. (2008), The Divergence of Liquidity Commonality in the Cross-Section of Stocks, Journal of Financial Economics, 89(3), 444–466, DOI: http://dx.doi.org/10.1016/j.jfineco.2007.10.004.
Kang, W., Zhang, H. (2013), Limit Order Book and Commonality in Liquidity, Financial Review, 48(1), 97–122, DOI: http://dx.doi.org/10.1111/j.1540-6288.2012.00348.x.
Karolyi, G.A., Lee, K.-H., van Dijk, M.A. (2012), Understanding Commonality in Li-quidity Around the World, Journal of Financial Economics, 105(1), 82–112, DOI: http://dx.doi.org/10.1016/j.jfineco.2011.12.008.
Kempf, A., Mayston, D. (2008), Liquidity Commonality Beyond Best Prices, Journal of Financial Research, 31(1), 25–40, DOI: http://dx.doi.org/10.1111/j.1475-6803.2008.00230.x.
Korajczyk, R., Sadka, R. (2008), Pricing the Commonality Across Alternative Measures of Liquidity, Journal of Financial Economics, 87(1), 45–72, DOI: http://dx.doi.org/10.1016/j.jfineco.2006.12.003.
Miralles Marcelo, J.L., Miralles Quirós, M., Oliveira, C. (2015), Systematic Liquidity: Commonality and Intertemporal Variation in the Portuguese Stock Market, Cuadernos de Gestion, 15(2), 39–64. DOI: http://dx.doi.org/10.5295/cdg.140472mm.
Narayan, P.K., Zhang, Z., Zheng, X. (2015), Some Hypotheses on Commonality in Liquid-ity: New Evidence from the Chinese Stock Market, Emerging Markets Finance & Trade, 51, 915–944, DOI: http://dx.doi.org/10.1080/1540496X.2015.1061799.
Newey, W.K., West, K.D. (1987), A Simple, Positive Semi-Define, Heteroskesticity and Autocorrelation Consistent Covariance Matrix, Econometrica, 55(3), 703–708, DOI: http://dx.doi.org/10.2307/1913610.
Nowak, S., Olbryś, J. (2016), Direct Evidence of Non-Trading on the Warsaw Stock Exchange, Research Papers of Wroclaw University of Economics, 428, 184–194.
Olbryś, J. (2014), Is Illiquidity Risk Priced? The Case of the Polish Medium-Size Emerg-ing Stock Market, Bank i Kredyt, 45(6), 513–536.
Olbryś, J. (2018), Intra-Market Commonality in Liquidity. New Evidence from the Polish Emerging Stock Market, SSEM EuroConference 2018: Emerging Market Economies, June 7–8, 2018, Lodz, Poland.
Olbryś, J., Mursztyn, M. (2018), On Some Characteristics of Liquidity Proxy Time Se-ries. Evidence from the Polish Stock Market, in: Tsounis N., Vlachvei A. (eds) Advances in Time Series Data Methods in Applied Economic Research. Springer Proceedings in Business and Economics, Springer, Cham, 177–189, DOI: http://dx.doi.org/10.1007/978-3-030-02194-8_13.
Pukthuanthong-Le, K., Visaltanachoti, N. (2009), Commonality in Liquidity: Evidence from the Stock Exchange of Thailand, Pacific-Basin Finance Journal, 17(1), 80–99, DOI: http://dx.doi.org/10.1016/j.pacfin.2007.12.004.
Sensoy, A. (2016), Commonality in Liquidity: Effects of Monetary Policy and Macroe-conomic Announcements., Finance Research Letters, 16, 125–131, DOI: http://dx.doi.org/10.1016/j.frl.2015.10.021.
Syamala, S.R., Wadhwa, K., Goyal, A. (2017), Determinants of Commonality in Liquidi-ty: Evidence from an Order-Driven Emerging Market, North American Journal of Economics and Finance, 42, 38–52, DOI: http://dx.doi.org/10.1016/j.najef.2017.07.003.
Tsay, R.S. (2010), Analysis of Financial Time Series, John Wiley, New York.
Wang, J. (2013), Liquidity Commonality Among Asian Equity Markets, Pacific-Basin Finance Journal, 21(1), 1209–1231, DOI: http://dx.doi.org/10.1016/j.pacfin.2012.06.003.
Downloads
Published
How to Cite
Issue
Section
License
The journal provides an Open Access to its content based on the non-exclusive licence Creative Commons (CC BY-ND 4.0).
To enable the publisher to disseminate the author's work to the fullest extent, the author must agrees to the terms and conditions of the License Agreement with Nicolaus Copernicus University.
Stats
Number of views and downloads: 455
Number of citations: 0
