Stock Price Synchronicity and Liquidity

摘要：

We provide a simple theoretical analysis based on Kyles (1985) framework, and demonstrate how stock price synchronicity can affect the adverse information risk that market makers face and therefore the liquidity of the stock. Our empirical evidence is consistent with our theoretical conjecture. We find that stocks which co-move more with the market index have higher liquidity, computed based on effective spread, price impact or Amihud illiquidity measures. The results are obtained after controlling for cross-sectional differences in firm size, price levels, total and idiosyncratic volatilities, and are robust to both S&P and non S&P index stocks. Besides market co-movement, industry wide component in returns also reduces the adverse selection risk and improves the liquidity. We also find results related to indexing effect. Following the addition to the S&P 500, a firm that experiences an increase in co-movement with the market is more likely to be accompanied by an improvement in liquidity.

作者: Kalok Chan Allaudeen Hameed Wenjin Kang

作者单位: Department of Finance,Hong Kong University of Science and Technology,Clear Water Bay,Hong Kong Department of Finance and Accounting,National University of Singapore,Singapore 117592

会议类型: 国际会议

会议名称: 2008年中国金融国际年会

会议地点: 大连

会议语种:英文

页码: 1-36

在线出版日期: 2008-07-02（万方平台首次上网日期，不代表论文的发表时间）