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Common Patterns in Commonality in Returns, Liquidity, and Turnover around the World

  • Karolyi, G. Andrew

    (Ohio State U)

  • Lee, Kuan Hui

    (Rutgers U)

  • van Dijk, Mathijs A.

    (RSM Erasmus U)

We uncover similar cross-country and time-series patterns in co-movement or "commonality" in stock returns, liquidity, and trading activity across 40 developed and emerging countries. The extent to which the liquidity and turnover of individual stocks within a country move together is related to the same institutional characteristics as is comovement in stock returns. Commonality is greater in countries with weaker investor protection and a more opaque information environment. Monthly variation in commonality in returns, liquidity, and turnover is also driven by common determinants. Commonality increases during times of high market volatility, large market declines, and high interest rates, and is negatively related to capital market openness. Our results are consistent with theoretical models in which changes in the wealth and collateral value of traders and financial intermediaries endogenously affect liquidity, trading, and pricing.

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File URL: http://www.cob.ohio-state.edu/fin/dice/papers/2007/2007-16.pdf
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Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2007-16.

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Date of creation: Sep 2007
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Handle: RePEc:ecl:ohidic:2007-16
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Web page: http://www.cob.ohio-state.edu/fin/dice/list.htm
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