Is liquidity wasted? The zero-returns on the Warsaw Stock Exchange
- PDF / 906,531 Bytes
- 15 Pages / 439.37 x 666.142 pts Page_size
- 52 Downloads / 185 Views
Is liquidity wasted? The zero-returns on the Warsaw Stock Exchange 1 Barbara Bedowska-Sójka ˛
Accepted: 29 October 2020 © Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract The purpose of our study is to examine the dynamics of various liquidity proxies around specific price formation within intraday data. We examine the behavior of the measures representing price impact, depth of the market, its width and elasticity around intraday zeroreturn observations. Our sample is based upon quotations of blue chip stocks listed on the Warsaw Stock Exchange, one of the European emerging markets. This paper identifies an incoherent behavior of liquidity measures from different dimensions around intraday zeroreturns. Although the transaction costs are lower and zero return configurations seem to offer better liquidity, this potential is not exploited as the trading activity measures decrease. The stock market is characterized by high resiliency as the observed changes in liquidity measures are short-term. Keywords Liquidity · Intraday data · Market microstructure · Price configurations · Zero-return
1 Introduction Stocks’s liquidity surveys are a mainstream component of financial econometrics (Amihud and Mendelson 2015). There is a consensus on the issue that liquidity is an important price formation factor in both developed and emerging markets (Bekaert et al. 2007). However, changes in liquidity are driven by various factors (Das and Hanouna 2010; Yingyi 2019). There are at least four dimensions of liquidity mentioned in the literature: depth, width, immediacy of price reaction and resiliency (Mazza 2015). The depth as defined from the trading activity perspective is the ability of the market to absorb orders without significant impact on prices. The market width is described as the costs of reverting a position within an interval. Immediacy is defined as an impact on price, whereas resiliency is described as the speed at which liquidity reverts to ‘normal’ levels after an adverse liquidity shock (see e.g. Goyenko et al. 2009; Kyle 1985). Several attempts have been made to relate the incidence of zero-returns to liquidity. One of the earliest was reported by Lesmond et al. (1999) who proposed a new liquidity measure
B 1
Barbara Be˛dowska-Sójka [email protected] Uniwersytet Ekonomiczny w Poznaniu, al. Niepodległo´sci 10, Pozna´n 61-875, Poland
123
Annals of Operations Research
called zero-return. A zero-return is calculated as the proportion of daily zero-returns over a given month. In Lesmond et al. (1999) it is argued that zero-returns appear when the transaction costs threshold is not exceeded. In other words, zero-returns are the outcomes of the impact of transaction costs on investors’ decisions. In Lesmond et al. (1999) two groups of investors are considered: informed traders and liquidity (noise) investors. The former has the information advantage over the latter, which comes from the access to private information. The noise traders are uninformed, have no access to p
Data Loading...
