Liquidity commonality and spillover in the US and Japanese markets: an intraday analysis using exchange-traded funds

Liquidity commonality and spillover in the US and Japanese markets: an intraday analysis using... This article examines the intraday returns and liquidity patterns of the Standard & Poor’s Depositary Receipts (SPY) and the iShares Morgan Stanley Capital International Inc. (MSCI) Japan Index Fund (EWJ). These exchange-traded funds seemingly have very different holdings, namely, US stocks and Japanese stocks. Our findings suggest that some commonality exists in the returns and liquidity of these apparently different assets. First, there are intraday, daily and monthly patterns in the measures of liquidity for both funds. Second, the measures of liquidity are correlated across these two assets. Third, there is evidence of intraday spillover in the mean, volatility and depth from the SPY to the EWJ, but daily spillover is not observed. Our study extends two evolving strands of the literature: the integration of world markets in terms of returns behavior, and the other strand suggests that liquidity may have a systematic, or market-wide, component. This paper provides direct evidence of the integration between the US and Japanese markets because contemporaneous trading prices for the US (SPY) and Japanese (EWJ) indices are employed. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Liquidity commonality and spillover in the US and Japanese markets: an intraday analysis using exchange-traded funds

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Publisher
Springer Journals
Copyright
Copyright © 2008 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-008-0084-9
Publisher site
See Article on Publisher Site

Abstract

This article examines the intraday returns and liquidity patterns of the Standard & Poor’s Depositary Receipts (SPY) and the iShares Morgan Stanley Capital International Inc. (MSCI) Japan Index Fund (EWJ). These exchange-traded funds seemingly have very different holdings, namely, US stocks and Japanese stocks. Our findings suggest that some commonality exists in the returns and liquidity of these apparently different assets. First, there are intraday, daily and monthly patterns in the measures of liquidity for both funds. Second, the measures of liquidity are correlated across these two assets. Third, there is evidence of intraday spillover in the mean, volatility and depth from the SPY to the EWJ, but daily spillover is not observed. Our study extends two evolving strands of the literature: the integration of world markets in terms of returns behavior, and the other strand suggests that liquidity may have a systematic, or market-wide, component. This paper provides direct evidence of the integration between the US and Japanese markets because contemporaneous trading prices for the US (SPY) and Japanese (EWJ) indices are employed.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Feb 14, 2008

References

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