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Market-wide liquidity co-movements, volatility regimes and market cap sizes

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  • BEAUPAIN, Renaud
  • GIOT, Pierre
  • PETITJEAN, Mikael

Abstract

Liquidity co-movements are studied within three different market capitalization indices, each made up of 100 NYSE stocks. Long-run liquidity co-movements are quantified in each class and compared to short-run liquidity co-movements. To condition the analysis of systematic liquidity upon index volatility, three regimes of volatility are defined using the Markov-switching methodology. Our results show that the magnitude of liquidity co-movements is on average positively related to the market capitalization of the index. There are significant differences between short-run and long-run liquidity comovements, and between spread-based measures and depth-based measures. Finally, the volatility regime bears on the liquidity co-movements relationships.

Suggested Citation

  • BEAUPAIN, Renaud & GIOT, Pierre & PETITJEAN, Mikael, 2006. "Market-wide liquidity co-movements, volatility regimes and market cap sizes," LIDAM Discussion Papers CORE 2006102, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2006102
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