Chordia, Roll And Subrahmanyam -Commonality In Liquidity

Journal of Financial Economics 56 (2000) 3}28 Commonality in liquidity Tarun Chordia , Richard Roll *, Avanidhar Subrahmanyam Owen School of Management, Vanderbilt University, Nashville, TN 37203, USA The Anderson School, University of California Los... More

Journal of Financial Economics 56 (2000) 3}28 Commonality in liquidity Tarun Chordia , Richard Roll *, Avanidhar Subrahmanyam Owen School of Management, Vanderbilt University, Nashville, TN 37203, USA The Anderson School, University of California Los Angeles, Los Angeles, CA 90095-1481, USA Received 8 August 1998; received in revised form 27 May 1999 Abstract Traditionally and understandably, the microscope of market microstructure has focused on attributes of single assets. Little theoretical attention and virtually no empirical work has been devoted to common determinants of liquidity nor to their empirical manifestation, correlated movements in liquidity. But a wider-angle lens exposes an imposing image of commonality. Quoted spreads, quoted depth, and e!ective spreads co-move with market- and industry-wide liquidity. After controlling for wellknown individual liquidity determinants, such as volatility, volume, and price, common in#uences remain signi"cant and material. Recogni Less