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Commonality in Liquidity Indices: The Emerging European Stock Markets

1
Department of Econometrics, Poznań University of Economics and Business, al. Niepodległości 10, 61-875 Poznań, Poland
2
Department of Operations Research, Poznań University of Economics and Business, al. Niepodległości 10, 61-875 Poznań, Poland
*
Author to whom correspondence should be addressed.
These authors contributed equally to this work.
Systems 2019, 7(2), 24; https://doi.org/10.3390/systems7020024
Received: 1 April 2019 / Revised: 16 April 2019 / Accepted: 24 April 2019 / Published: 28 April 2019
(This article belongs to the Special Issue Mathematical Models of Economic Systems)
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Abstract

The aim of the paper is to examine commonality in liquidity indices across emerging European stock markets. Five markets are included in the study: Hungarian, Czech, Polish, Russian and Turkish, in the period from 2008 to 2017. We propose liquidity indices that are based on low-frequency liquidity proxies and capture both the dynamics coming from volume and price changes. We find strong commonality of the liquidity indices across all examined markets which is robust to the choice of liquidity proxy. The dependence between indices enhances in times of crisis and large market declines, and weakens when markets become stable. We also examine the interdependency between liquidity and volatility estimates and find that liquidity on the European emerging markets is related to CBOE Volatility Index (VIX). Liquidity in the whole region decreases when VIX increases, and vice versa. The liquidity indices based on the extreme market movements show that there are no differences in commonality in time of extreme negative and positive returns. View Full-Text
Keywords: liquidity; co-movement; emerging markets; commonality; extremes liquidity; co-movement; emerging markets; commonality; extremes
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Będowska-Sójka, B.; Echaust, K. Commonality in Liquidity Indices: The Emerging European Stock Markets. Systems 2019, 7, 24.

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