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Liquidity commonality in extreme quantiles: Indian evidence

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  • Tripathi, Abhinava
  • Dixit, Alok
  • Vipul,

Abstract

The study examines liquidity commonality in the context of the National Stock Exchange of India, using the market model of Chordia, Roll, & Subrahmanyam (2000). The tail behavior of liquidity commonality is studied using the fixed-effect panel quantile regression model. The results suggest that commonality is time-varying and heterogeneous across conditional quantiles of liquidity. The evidence shows that the low barriers to entry and exit in order-driven markets create a de-facto liquidity balancing mechanism across the extreme quantiles of liquidity. Overall, the study supports the ‘free-entry’ and ‘free-exit’ hypothesis.

Suggested Citation

  • Tripathi, Abhinava & Dixit, Alok & Vipul,, 2021. "Liquidity commonality in extreme quantiles: Indian evidence," Finance Research Letters, Elsevier, vol. 38(C).
    • Handle: RePEc:eee:finlet:v:38:y:2021:i:c:s1544612319305331
    DOI: 10.1016/j.frl.2020.101448
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    1. Mu-Shun Wang, 2022. "Shareholder Disputes and Commonality in Liquidity: Evidence from the Equity Markets in China," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(2), pages 291-325, June.

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    More about this item

    Keywords

    Liquidity commonality; Principal component analysis; Limit-order book; De-facto market making;
    All these keywords.

    JEL classification:

    • 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
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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