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

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Author Info
BEAUPAIN, Renaud
GIOT, Pierre
PETITJEAN, Mikael

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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.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2006102.

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Date of creation: 01 Oct 2006
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Handle: RePEc:cor:louvco:2006102

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