We review the extensive literature on systemic risk and connect it to the current regulatory debate. While we take stock of the achievements of this rapidly growing field, we identify a gap between two main approaches. The first one studies different sources of systemic risk in isolation, uses confidential data, and inspires targeted but complex regulatory tools. The second approach uses market data to produce global measures which are not directly connected to any particular theory, but could support a more efficient regulation. Bridging this gap will require encompassing theoretical models and improved data disclosure

We conduct the first comprehensive study of commonality in liquidity using intraday spread and depth data from 47 stock exchanges. We show that commonality is a widespread, global phenomenon. Firm-level changes in spreads and depths are significantly influenced by exchange-wide changes in liquidity on the majority of the world's stock exchanges. Emerging Asian exchanges have exceptionally strong commonality, while those of Latin America exhibit little if any commonality. In contrast to previous NYSE-based results, we find that commonality in bid-ask spreads is most prevalent among small firms while commonality in depths increases monotonically with firm size. After documenting the pervasive role of commonality within individual exchanges, we examine commonality across exchanges. We extend the empirical model of Chordia, Roll, and Subrahmanyam (2000) and find the first empirical evidence of a distinct, global component in bid-ask spreads and depths. Changes in global spreads and depths have a significant effect on changes in liquidity at the exchange level. We show that while exchange size (total market capitalization) plays an influential role in the liquidity transmission process, global commonality is not driven by a subset of large exchanges.

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