Chordia T., Roll R., Subrahmanyam A. Commonality in liquidity

Journal of Financial Economics №56, 2000. — 3-28 ppTraditionally and understandably, the microscope of market microstructure has focused on attributes of single assets. Little theoretical attention and virtually no empirical work has been devoted to common determinants of liquidity nor to their empirical manifestation, correlated movements in liquidity. But a wider-angle lens exposes an imposing image of commonality. Quoted spreads, quoted depth, and e!ective spreads co-move with market- and industry-wide liquidity. After controlling for wellknown individual liquidity determinants, such as volatility, volume, and price, common in#uences remain signi"cant and material. Recognizing the existence of commonality is
a key to uncovering some suggestive evidence that inventory risks and asymmetric information both a!ect intertemporal changes in liquidity.