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Liquidity in Asian markets: Intensity of Regional and global linkages

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  • Suraj Kumar
  • Krishna Prasanna

Abstract

This study investigates cross-market linkages and the intensity of liquidity spillovers across nine Asian markets and five developed markets during 2006 to 2016. Further, the study examines the contagion caused by recent global financial crisis and its impact on the market liquidity. The direction and intensity of spillovers has been measured using forecast error variance decomposition method as suggested by Diebold and Yilmaz (2012). Among the developed markets, the United States, Germany and the United Kingdom significantly affect liquidity changes in Asian countries like India, China, Singapore and Japan. The results revels that on average, each Asian market receives 7% spillover from the global markets and 16% from regional markets. During the financial crisis, the average regional spillover increased to 20% and the global spillover increased to 11%. Thus, in Asia, the regional spillover is higher than the global spillover. Our results support the demand side hypothesis and suggest that it is the trade and portfolio investments that drive the liquidity spillovers. Our findings have potential implications for international investors, policy makers and market regulators.

Suggested Citation

  • Suraj Kumar & Krishna Prasanna, 2018. "Liquidity in Asian markets: Intensity of Regional and global linkages," Applied Economics, Taylor & Francis Journals, vol. 50(55), pages 6010-6023, November.
    • Handle: RePEc:taf:applec:v:50:y:2018:i:55:p:6010-6023
    DOI: 10.1080/00036846.2018.1489112
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    Cited by:

    1. Abhinava Tripathi & Vipul & Alok Dixit, 0. "Liquidity commonality beyond best prices: Indian evidence," Journal of Asset Management, Palgrave Macmillan, vol. 0, pages 1-19.
    2. Abhinava Tripathi & Vipul & Alok Dixit, 2020. "Liquidity commonality beyond best prices: Indian evidence," Journal of Asset Management, Palgrave Macmillan, vol. 21(4), pages 355-373, July.

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