Seminar Room 1, Espais de Recerca (ERE)

Duration: 30 minutes

Abstract: This study examines the dynamic linkages between commonality in liquidity in international stock markets and global spillovers of market volatility. Using a novel liquidity measure, proposed by Abdi & Ranaldo (2017), as input for a variance decomposition exercise, we document that innovations to liquidity in most markets are induced predominately by inter-market innovations. We also find that commonality in liquidity peaks right after large negative market declines, coinciding with crisis periods. The results for the dynamic Granger causality test indicate that the relationship between commonality in liquidity and global spillovers in market volatility is complex and time varying. We show that commonality in liquidity helps to explain volatility, suggesting adverse loops in the funding market during uncertain times.