Mathijs van Dijk publishes in the Journal of Financial Economics

<link portal page _self>Mathijs van Dijk's paper "Understanding Commonality in Liquidity Around the World" (co-authored by Andrew Karolyi and Kuan-Hui Le) has been accepted for publication in the Journal of Financial Economics. This paper investigates the extent to which financial market liquidity is correlated across different stocks within 40 stock markets around the world. The authors find evidence of considerable comovement (or "commonality") in liquidity, especially during financial crises and especially in less developed countries with relatively weak investor protection and poor transparency. The authors show that the cross-country and time-series variation in commonality in liquidity can be more reliably explained by factors related to the demand for liquidity (such as the correlated trading behavior of international and institutional investors) than by factors related to the supply of liquidity (such as the funding liquidity of financial intermediaries). Understanding commonality in liquidity is important for investors, because they may face rising trading costs across the board exactly during times where they want to exit their positions, and also for regulators as commonality is a measure of the fragility of financial markets.