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Intraday Liquidity Patterns in Indian Stock Market

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  • R. Krishnan
  • Vinod Mishra

Abstract

This paper attempts to study the liquidity patterns and to detect any commonality across liquidity measures, using one year intraday data from India's National Stock Exchange (NSE). Using the data on 20 stocks from NSE's NIFTY Index, we found that most of the volume and spread related liquidity measures exhibit an intra-day U-shaped pattern, similar to those found for a market consisting of market makers. However, we also note that the presence of U-shaped pattern in both the volume related and spread related measures,implying a concurrent high trading volume and wide spreads. While such a phenomena has been reported previously for a market with a specialist liquidity provider and can be explained using the Brock and Kleidon (1992) model [Journal of Economic Dynamics and Control, 16, 451-489 ], it is for the first time we observe such a behaviour in Indian stock market; an order driven market where there is no market maker. Besides, we find only a weak evidence of co-movement or commonality in liquidity measures. This suggests that market wide factors may not play a significant role in affecting the liquidity of individual stocks, hinting that such factors need not be a part of the asset pricing process.

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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 34-12.

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Length: 38 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:mos:moswps:2012-34

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Keywords: Liquidity; Intraday data; Commonality; NSE; India;

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