CAFO Working Papers, Centre for Labour Market Policy Research (CAFO), School of Business and Economics, Linnaeus University
No 2009:11:
Liquidity on the Scandinavian Order-driven Stock Exchanges
Jonas Söderberg ()
Abstract: In this paper, the time-series dynamics of liquidity on
the Scandinavian stock exchanges between January 1993 and June 2005 are
studied with liquidity indices. We observe that on all Scandinavian stock
exchanges, liquidity has increased during the examined period. However, the
monthly variation in liquidity is large. Moreover, within these
order-driven stock exchanges, the relationship between the market variables
return, volatility, trading activity,and liquidity is examined in a VAR
framework. In line with previous findings on the U.S. stock markets, we
find that an increase in return predicts higher liquidity, that there is a
negative relationship between volatility and liquidity, and that a positive
shock in trading activity predicts increasing liquidity. However, in
comparison to previous studies on U.S. stock exchanges, our results
indicate that liquidity is more dependent on trading activity in the
Scandinavian order-driven markets. Finally, the linkage between these stock
exchanges in terms of liquidity is explored with VAR. In these VAR, we find
evidence of liquidity spillover between the Scandinavian stock
exchanges.
Keywords: Liquidity; Market microstructure theory; Scandinavian stock markets; Liquidity spillover; Vector autoregression analysis; (follow links to similar papers)
JEL-Codes: C22; G11; G12; (follow links to similar papers)
75 pages, December 1, 2008
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