International journal of

ADVANCED AND APPLIED SCIENCES

EISSN: 2313-3724, Print ISSN:2313-626X

Frequency: 12
line decor
  
line decor

 Volume 5, Issue 1 (January 2018), Pages: 37-48

----------------------------------------------

 Original Research Paper

 Title: Liquidity commonality under normal and a boom/bust conditions: Evidence from the Saudi stock exchange

 Author(s): Kais Tissaoui 1, *, Mondher Kouki 2, 3, Mounir Jouadi 4

 Affiliation(s):

 1Community College, University of Hail, Hail, Saudi Arabia
 2The International Finance Group, Faculty of Management and Economic Sciences of Tunis, El Manar University, Tunis, Tunisia
 3College of Humanities and Administrative Sciences, Al Jouf University, Sakakah, Saudi Arabia
 4College of Business Administration, University of Hail, Hail, Saudi Arabia

 https://doi.org/10.21833/ijaas.2018.01.006

 Full Text - PDF          XML

 Abstract:

This study explores the commonality in liquidity for Saudi equities by using data from 105 shares covering the period January 2008 to December 2014. Our market model regression results present evidence a strong commonality in liquidity on the Tadawul stock market. In addition, we show the existence of significant commonality in liquidity over time during normal conditions. Furthermore, this study documents also that the liquidity commonality in the Saudi stock market is stronger in boom/bust stock market conditions than in boom/bust oil market conditions. Then, our time series analysis finds that commonality in liquidity is important across all size-based quartiles. Under the boom/bust stock market condition, the first quartile for firms with a small market capitalization is the most susceptible to liquidity commonality, while the last quartile, regrouping the firms with a large market capitalization, is the least sensitive to commonality in liquidity. However, under boom/bust oil market conditions, the small market capitalization quartile is, in general, least susceptible to market-wide liquidity, while the second quartile is more sensitive to liquidity commonality. 

 © 2017 The Authors. Published by IASE.

 This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

 Keywords: Liquidity commonality, Boom/bust cycles, Stock market, Oil market, Tadawul

 Article History: Received 17 July 2017, Received in revised form 19 October 2017, Accepted 5 November 2017

 Digital Object Identifier: 

 https://doi.org/10.21833/ijaas.2018.01.006

 Citation:

 Tissaoui 1K, Kouki M, and Jouadi M (2018). Liquidity commonality under normal and a boom/bust conditions: Evidence from the Saudi stock exchange. International Journal of Advanced and Applied Sciences, 5(1): 37-48

 Permanent Link:

 http://www.science-gate.com/IJAAS/2018/V5I1/Tissaoui.html

----------------------------------------------

 References (35)

  1. Acharya VV and Pedersen LH (2005). Asset pricing with liquidity risk. Journal of Financial Economics, 77(2): 375-410. https://doi.org/10.1016/j.jfineco.2004.06.007 
  2. Amihud Y (2002). Illiquidity and stock returns: cross-section and time-series effects. Journal of Financial Markets, 5(1): 31-56. https://doi.org/10.1016/S1386-4181(01)00024-6 
  3. Arouri MEH and Fouquau J (2009). On the short-term influence of oil price changes on stock markets in GCC countries: Linear and nonlinear analyses. Economics Bulletin, 29 (2): 795-804.     
  4. Bai M and Qin Y (2015). Commonality in liquidity in emerging markets: Another supply-side explanation. International Review of Economics and Finance, 39: 90-106. https://doi.org/10.1016/j.iref.2015.06.005 
  5. Bouri E (2015). Oil volatility shocks and the stock markets of oil-importing MENA economies: A tale from the financial crisis. Energy Economics, 51: 590-598. https://doi.org/10.1016/j.eneco.2015.09.002 
  6. Brockman P and Chung DY (2002). Commonality in liquidity: Evidence from an order‐driven market structure. Journal of Financial Research, 25(4): 521-539. https://doi.org/10.1111/1475-6803.00035 
  7. Brockman P and Chung DY (2008). Commonality under market stress: Evidence from an order-driven market. International Review of Economics and Finance, 17(2):179 -196. https://doi.org/10.1016/j.iref.2007.06.002 
  8. Brockman P, Chung DY, and Pérignon C (2009). Commonality in liquidity: A global perspective. Journal of Financial and Quantitative Analysis, 44(4): 851-882. https://doi.org/10.1017/S0022109009990123 
  9. Brunnermeier MK and Pedersen LH (2008). Market liquidity and funding liquidity. The Review of Financial Studies, 22(6): 2201-2238. https://doi.org/10.1093/rfs/hhn098 
  10. Bruno V and Shin HS (2013). Capital flows, cross-border banking and global liquidity (No. w19038). National Bureau of Economic Research, Cambridge, MA. https://doi.org/10.3386/w19038 
  11. Chordia T, Roll R, and Subrahmanyam A (2000). Commonality in liquidity. Journal of Financial Economics, 56(1): 3–28. https://doi.org/10.1016/S0304-405X(99)00057-4 
  12. Chordia T, Roll R, and Subrahmanyam A (2001). Market liquidity and trading activity. Journal of Finance, 56(2):501-530. https://doi.org/10.1111/0022-1082.00335 
  13. Chordia T, Roll R, and Subrahmanyam A (2003). Determinants of daily fluctuations in liquidity and trading activity. Cuadernos de Economía, 40(121): 728-751. https://doi.org/10.4067/S0717-68212003012100046 
  14. Coughenour JF and Saad MM (2004). Common market makers and commonality in liquidity. Journal of Financial Economics, 73(1): 37–69. https://doi.org/10.1016/j.jfineco.2003.05.006 
  15. Fabre J and Frino A (2004). Commonality in liquidity: Evidence from the Australian stock exchange. Accounting and Finance, 44(3): 357-368. https://doi.org/10.1111/j.1467-629x.2004.00117.x 
  16. Fernando C, Herring R, Subrahmanyam A (2008). Common liquidity shocks and market collapse: Lessons from the market for perps. Journal of Banking and Finance 32, 1625–1635. https://doi.org/10.1016/j.jbankfin.2007.11.011 
  17. Foran J, Hutchinson MC, and O'Sullivan N (2015). Liquidity commonality and pricing in UK equities. Research in International Business and Finance, 34: 281-293. https://doi.org/10.1016/j.ribaf.2015.02.006 
  18. Gatfaoui H (2016). Linking the gas and oil markets with the stock market: Investigating the US relationship. Energy Economics, 53: 5-16. https://doi.org/10.1016/j.eneco.2015.05.021 
  19. Hameed A, Kang W, and Viswanathan S (2010). Stock market declines and liquidity. The Journal of Finance, 65(1): 257-293. https://doi.org/10.1111/j.1540-6261.2009.01529.x 
  20. Hasbrouck J and Seppi DJ (2001). Common factors in prices, order flows, and liquidity. Journal of Financial Economics, 59(3): 383-411. https://doi.org/10.1016/S0304-405X(00)00091-X 
  21. Huberman G and Halka D (2001). Systematic liquidity. Journal of Financial Research, 24(2): 161-178. https://doi.org/10.1111/j.1475-6803.2001.tb00763.x 
  22. Instefjord N (1999). A simple model of market liquidity. Economics Letters, 64(3): 329-337. https://doi.org/10.1016/S0165-1765(99)00105-6 
  23. Jaghoubi S (2015). Crude oil price uncertainty and stock markets in gulf corporation countries: A var-garch copula model. Global Journal of Management and Business Research, 15(10): 1-11.     
  24. Kamara A, Lou X, and Sadka R (2008). The divergence of liquidity commonality in the cross-section of stocks. Journal of Financial Economics, 89(3): 444-466. https://doi.org/10.1016/j.jfineco.2007.10.004 
  25. Karolyi GA, Lee KH, and Van Dijk MA (2012). Understanding commonality in liquidity around the world. Journal of Financial Economics, 105(1): 82-112. https://doi.org/10.1016/j.jfineco.2011.12.008 
  26. Koch A, Ruenzi S, and Starks L (2016). Commonality in liquidity: a demand-side explanation. The Review of Financial Studies, 29(8): 1943-1974. https://doi.org/10.1093/rfs/hhw026 
  27. Lee HC, Tseng YC, and Yang CJ (2014). Commonality in liquidity, liquidity distribution, and financial crisis: Evidence from country ETFs. Pacific-Basin Finance Journal, 29: 35-58. https://doi.org/10.1016/j.pacfin.2014.03.006 
  28. Lee K (2011). The world price of liquidity risk. Journal of Financial Economics, 99(1): 136-161. https://doi.org/10.1016/j.jfineco.2010.08.003 
  29. Pukthuanthong-Le K and Visaltanachoti N (2009). Commonality in liquidity: Evidence from the Stock Exchange of Thailand. Pacific-Basin Finance Journal, 17(1): 80-99. https://doi.org/10.1016/j.pacfin.2007.12.004 
  30. Rösch CG and Kaserer C (2014). Reprint of: Market liquidity in the financial crisis: The role of liquidity commonality and flight-to-quality. Journal of Banking and Finance, 45: 152-170. https://doi.org/10.1016/j.jbankfin.2014.06.010 
  31. Sheskin DJ (2011). Handbook of parametric and nonparametric statistical procedures (Fifth Edition). Chapman and Hall/CRC, Boca Raton, Florida, USA.     
  32. Syamala SR, Reddy VN, and Goyal A (2014). Commonality in liquidity: An empirical examination of emerging order-driven equity and derivatives market. Journal of International Financial Markets, Institutions and Money, 33: 317-334. https://doi.org/10.1016/j.intfin.2014.09.001 
  33. Tissaoui K, Ftiti Z, and Aloui C (2015). Commonality in liquidity: Lessons from an emerging stock market. Journal of Applied Business Research, 31(5): 1927-1952. https://doi.org/10.19030/jabr.v31i5.9410 
  34. Wang J (2013). Liquidity commonality among Asian equity markets. Pacific-Basin Finance Journal, 21(1): 1209-1231. https://doi.org/10.1016/j.pacfin.2012.06.003 
  35. Westfall PH (2014). Kurtosis as peakedness, 1905–2014. RIP. The American Statistician, 68(3): 191-195. https://doi.org/10.1080/00031305.2014.917055  PMid:25678714 PMCid:PMC4321753