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

Abstract

. 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.

Market volatility and illiquidity during the COVID-19 outbreak: Evidence from the Saudi stock exchange through the wavelet coherence approaches

“…Since Demsetz’s (1968) seminal paper on liquidity in the financial market, many authors working on microstructure theory have explained this concept theoretically and empirically ( Chordia et al, 2000 , Chung and Chuwonganant, 2018 , Fernando et al, 2008 , Kyle, 1985 , Ma et al, 2018 ). Some authors such as Chordia et al, 2003 , Tissaoui, 2016 , and Tissaoui et al (2018) asserted that a good understanding of the dynamics of stock market liquidity is important for investors and regulators. First, it allows traders to optimise their trading policies by managing liquidity risks, leading to an optimal allocation of funds, and increases their confidence in the future.…”

Liquidity Synchronization, its Determinants and Outcomes under Economic Growth Volatility: Evidence from Emerging Asian Economies

“…Their findings suggest that oil price volatility in liquidity synchronicity is more substantial for oil sensitive countries than oil price returns except for five OPEC members, where synchronicity in liquidity is heavily affected by oil volatility along with returns. In a similar study, Tissaoui et al (2017) explore synchronicity in liquidity using data from 105 stocks for 2008 to 2014 for the Saudi stock market. The analysis shows strong liquidity synchronicity in the Tadawul stock market and significant synchronicity in liquidity under normal conditions.…”

“…Liquidity synchronization in the stock markets of the selected countries is measured following (Chordia et al 2000;Fabre and Frino 2004;Zhang et al 2009;Dang et al 2015;Rupeika-Apoga and Zaidi 2018;Anthony et al 2017;Moshirian et al 2017;Tissaoui et al 2017). A market model is used by applying time series regression to investigate the liquidity synchronization of each stock in each year:…”

“…Market return variables are included to identify any spurious dependence arising from the relationship between returns and liquidity. Vi,t is the percentage change in a stock's squared return, which is a measure of stock return volatility effects on stock liquidity (Tissaoui et al 2017;Galariotis and Giouvris 2007).…”

Assets Value Added and Assets Liquidity on Stock Liquidity

“…The ability of entity management to create assets value added and assets liquidity can provide a signal of good news to the stock market so that stock liquidity can be expected to increase, stock liquidity can be a measure to find out which stock is in demand by investors, the higher the investors' interest in a stock, Additionally, the shares' liquidity will rise. (Margaretha, 2005), a share that is frequently traded in the stock market can be viewed from the standpoint of the frequency and volume of share trading, previous research related to stock liquidity includes a focus on stock trading volume (B. S. F. Chan et al, 2018;Song et al, 2005), there is also a focus on trading frequency (Cartea & Penalva, 2012;Morgan, 2013;Rossi et al, 2015), there is also a focus on the Illiquidity ratio, the log of the number of daily cash flows on the company's shares, the bid-ask spread (Al-jaifi, 2017;Bhattacharya et al, 2019;Mardani et al, 2018;Tissaoui et al, 2018;Toh et al, 2018) while in this research stock liquidity is seen from the perspective of stock trading frequency.…”