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Illiquidity, return and risk in G7 stock markets: Interdependencies and spillovers

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  • Andrikopoulos, Andreas
  • Angelidis, Timotheos
  • Skintzi, Vasiliki

Abstract

Trading activity in G7 stock markets reflects not only the macroeconomic and financial impact of these G7 economies in international economic growth, but also their financial interdependence. While this nexus of major stock markets has been explored in terms of volatility and return spillovers, there has been no combined analysis of return, volatility and illiquidity spillovers. We study illiquidity spillovers because they are transmissions of trading activity and, thereof, transmissions of information and market sentiment. We find that the dynamics of international stock markets are characterized by persistent illiquidity and also that illiquidity shocks are significantly correlated across markets. Furthermore, we discover Granger causal associations between risk, return and illiquidity across G7 stock market and also within each stock market. Our findings bear significance for the regulation of international financial markets and also for international portfolio diversification.

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  • Andrikopoulos, Andreas & Angelidis, Timotheos & Skintzi, Vasiliki, 2014. "Illiquidity, return and risk in G7 stock markets: Interdependencies and spillovers," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 118-127.
  • Handle: RePEc:eee:finana:v:35:y:2014:i:c:p:118-127
    DOI: 10.1016/j.irfa.2014.07.013
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    1. repec:scn:00rbes:y:2015:i:3:p:5-31 is not listed on IDEAS
    2. repec:eee:ecofin:v:48:y:2019:i:c:p:857-867 is not listed on IDEAS
    3. Hu, Haoshen & Kaspereit, Thomas & Prokop, Jörg, 2016. "The information content of issuer rating changes: Evidence for the G7 stock markets," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 99-108.

    More about this item

    Keywords

    Illiquidity spillovers; Return spillovers; Volatility spillovers; VAR; G7 stock markets;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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