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Assessing Commonality in Liquidity: Evidence from an Emerging Market’s Index Stocks
, A.K. Misra, A. Pant, M.R. Rahman
Published in Sage Publications India Pvt. Ltd
2020
Abstract
This study investigates the degree to which movements in stock liquidity is determined by common underlying factors in a large emerging market, India. This degree is called commonality. Commonality has been measured for NIFTY50 stocks using high frequency data across a variety of liquidity measures. This study empirically verifies the relative strength of market- and industry-wide liquidity in explaining commonality. Furthermore, the study analyses the impact of industry-wide liquidity on the liquidity of individual stocks belonging to the key industries of Indian economy, viz. consumer goods and pharma, energy, financial services, infrastructure, information technology (IT) and telecom, manufacturing and natural resources. Among all the sectors studied infrastructure, IT and telecom, manufacturing and natural resources sectors possess higher degree of Industry-wide commonality. This means fund managers find it difficult in altering a portfolio having greater exposure to these sectors. Studying the behaviour of commonality will also assist regulators in monitoring abnormal market fluctuations. The study contributes to the understanding of commonality on an emerging order driven market like India. © 2020 International Management Institute, New Delhi.
About the journal
JournalData powered by TypesetGlobal Business Review
PublisherData powered by TypesetSage Publications India Pvt. Ltd
ISSN09721509