Top

Published in:

2018 | OriginalPaper | Chapter

Testing Stability of Correlations Between Liquidity Proxies Derived from Intraday Data on the Warsaw Stock Exchange

Author : Joanna Olbryś

Published in: Contemporary Trends and Challenges in Finance

Publisher: Springer International Publishing

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

The aim of this paper is to investigate relationships based on correlations between alternative liquidity measures derived from intraday data on the Warsaw Stock Exchange (WSE). Analyses of correlations help to find an answer to important question whether different liquidity proxies capture various sources of market liquidity/illiquidity or not. The main research hypothesis states that correlations are stable in specified periods. The hypothesis is verified by applying equality tests of correlation matrices computed over non-overlapping subsamples. The dataset consists of daily proxies of four liquidity measures for 53 WSE-traded companies divided into three size groups. The whole sample covers the period from January 3, 2005 to June 30, 2015, and it includes three adjacent subsamples, each of equal size: the pre-crisis, crisis, and post-crisis periods. To calculate several liquidity measures based on intraday data it is essential to recognize a side initiating the transaction and to distinguish between buyer- and seller-initiated trades. In this paper, the Lee and Ready (J Financ 46(2):733–746, 1991) trade classification algorithm is employed to infer trade sides. The obtained empirical results concerning the stability of correlations between liquidity proxies in the whole group of companies are not homogeneous.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

previous chapter Intraday Trading Patterns on the Warsaw Stock Exchange

next chapter Validating Downside Accounting Beta: Evidence from the Polish Construction Industry

Acker D, Stalker M, Tonks I (2002) Daily closing inside spreads and trading volumes around earnings announcements. J Bus Finan Acc 29(9/10):1149–1179CrossRef

Chakrabarty B, Li B, Nguyen V, Van Ness RA (2007) Trade classification algorithms for electronic communications network trades. J Bank Financ 31:3806–3821CrossRef

Chakrabarty B, Moulton PC, Shkilko A (2012) Short sale, long sale, and the Lee-Ready trade classification algorithm revisited. J Financ Mark 15(4):467–491CrossRef

Chan K, Fong W-M (2000) Trade size, order imbalance, and the volatility-volume relation. J Financ Econ 57:247–273CrossRef

Chordia T, Roll R, Subrahmanyam A (2000) Commonality in liquidity. J Financ Econ 56:3–28CrossRef

Chordia T, Roll R, Subrahmanyam A (2001) Market liquidity and trading activity. J Financ 56(2):501–530CrossRef

Chordia T, Roll R, Subrahmanyam A (2002) Order imbalance, liquidity, and market returns. J Financ Econ 65:111–130CrossRef

Chordia T, Sarkar A, Subrahmanyam A (2005) An empirical analysis of stock and bond market liquidity. Rev Financ Stud 18(1):85–129CrossRef

Chung KH, Van Ness RA (2001) Order handling rules, tick size, and the intraday pattern of bid-ask spreads for Nasdaq stocks. J Financ Mark 4:143–161CrossRef

Coppejans M, Domowitz I, Madhavan A (2004) Resiliency in an automated auction. Working Paper

Corwin SA (1999) Differences in trading behavior cross NYSE specialist firms. J Finan 54(2):721–745CrossRef

Fama EF, French KR (1993) Common risk factors in the returns on stocks and bonds. J Financ Econ 33(1):3–56CrossRef

Fisher RA (1921) On the “probable error” of a coefficient of correlation deduced from a small sample. Metron 1:3–32

Fong KYL, Holden CW, Trzcinka C (2017) What are the best liquidity proxies for global research? Rev Financ 21:1355–1401CrossRef

Glosten LR (1987) Components of the bid-ask spread and the statistical properties of transaction prices. J Financ 42(4):1293–1307CrossRef

Goyenko RY, Holden CW, Trzcinka CA (2009) Do liquidity measures measure liquidity? J Financ Econ 92:153–181CrossRef

Hameed A, Kang W, Viswanathan S (2010) Stock market decline and liquidity. J Financ 65(1):257–293CrossRef

Hasbrouck J, Seppi DJ (2001) Common factors in prices, order flows, and liquidity. J Financ Econ 59:383–411CrossRef

Huang RD, Stoll H (1996) Dealer versus auction markets: a paired comparison of execution costs on NASDAQ and the NYSE. J Financ Econ 41:313–357CrossRef

Jennrich RI (1970) An asymptotic chi-square test for the equality of two correlation matrices. J Am Stat Assoc 65(330):904–912

Korajczyk R, Sadka R (2008) Pricing the commonality across alternative measures of liquidity. J Financ Econ 87(1):45–72CrossRef

Kyle AS (1985) Continuous auctions and insider trading. Econometrica 53(6):1315–1336CrossRef

Larntz K, Perlman MD (1985) A simple test for the equality of correlation matrices. Technical Report No. 63, Department of Statistics, University of Washington

Lee CMC, Ready MJ (1991) Inferring trade direction from intraday data. J Financ 46(2):733–746CrossRef

Levin EJ, Wright RE (1999) Explaining the intra-day variation in the bid-ask spread in competitive dealership markets: a research note. J Financ Mark 2(2):179–191CrossRef

Lin J-C, Sanger GC, Booth GG (1995) Trade size and components of the bid-ask spread. Rev Financ Stud 8(4):1153–1183CrossRef

Nowak S (2017) Order imbalance indicators in asset pricing: evidence from the Warsaw Stock Exchange. In: Jajuga K, Orlowski L, Staehr K (eds) Contemporary trends and challenges in finance. Springer, Cham, pp 91–102CrossRef

Nowak S, Olbryś J (2015) Zależności korelacyjne w szeregach stóp zwrotu spółek notowanych na Giełdzie Papierów Wartościowych w Warszawie SA (in Polish). Zarządzanie i Finanse 13(4/2):63–84

Nowak S, Olbryś J (2016) Direct evidence of non-trading on the Warsaw Stock Exchange. Res Pap Wroclaw Univ Econ 428:184–194

Odders-White ER (2000) On the occurrence and consequences of inaccurate trade classification. J Financ Mark 3:259–286CrossRef

Olbrys J (2013) Price and volatility spillovers in the case of stock markets located in different time zones. Emerg Mark Financ Trade 49(S2):145–157CrossRef

Olbryś J (2014) Is illiquidity risk priced? The case of the Polish medium-size emerging stock market. Bank Credit 45(6):513–536

Olbryś J (2017) Interaction between market depth and market tightness on the Warsaw Stock Exchange: a preliminary study. In: Jajuga K, Orlowski L, Staehr K (eds) Contemporary trends and challenges in finance. Springer, Cham, pp 103–111CrossRef

Olbryś J, Majewska E (2015) Bear market periods during the 2007-2009 financial crisis: direct evidence from the Visegrad countries. Acta Oecon 65(4):547–565CrossRef

Olbryś J, Mursztyn M (2015) Comparison of selected trade classification algorithms on the Warsaw Stock Exchange. Adv Comput Sci Res 12:37–52

Olbrys J, Mursztyn M (2017) Dimensions of market liquidity: the case of the Polish stock market. In: Tsounis N, Vlachvei A (eds) Advances in applied economic research. Springer, Cham, pp 151–166CrossRef

Peterson M, Sirri E (2003) Evaluation of the biases in execution costs estimation using trades and quotes data. J Financ Mark 6(3):259–280CrossRef

Piwowar MS, Wei L (2003) The sensitivity of effective spread estimates to trade-quote matching algorithms. Electron Mark 16(2):112–129CrossRef

Pukthuanthong-Le K, Visaltanachoti N (2009) Commonality in liquidity: evidence from the stock exchange of Thailand. Pac Basin Financ J 17(1):80–99CrossRef

Ranaldo A (2001) Intraday market liquidity on the Swiss stock exchange. Swiss Soc Financ Mark Res 15(3):309–327

Stoll HS (2000) Friction. J Financ 55(4):1479–1514CrossRef

Theissen E (2001) A test of the accuracy of the Lee/Ready trade classification algorithm. J Int Financ Mark Inst Money 11:147–165CrossRef

Van Ness BF, Van Ness RA, Pruitt SW (2000) The impact of the reduction in tick increments in major U.S. markets on spreads, depth, and volatility. Rev Quant Financ Account 15:153–167CrossRef

von Wyss R (2004) Measuring and predicting liquidity in the stock market. Dissertation Nr. 2899, University of St. Gallen

Title: Testing Stability of Correlations Between Liquidity Proxies Derived from Intraday Data on the Warsaw Stock Exchange
Author: Joanna Olbryś
Publisher: Springer International Publishing
Book: Contemporary Trends and Challenges in Finance
Print ISBN: 978-3-319-76227-2

Electronic ISBN: 978-3-319-76228-9

Copyright Year: 2018
DOI: https://doi.org/10.1007/978-3-319-76228-9_7