Applied Economics

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Liquidity commonality in the cryptocurrency

market

Abhinava Tripathi, Alok Dixit & Vipul

To cite this article: Abhinava Tripathi, Alok Dixit & Vipul (2022) Liquidity commonality
in the cryptocurrency market, Applied Economics, 54:15, 1727-1741, DOI:
10.1080/00036846.2021.1982128

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Published online: 11 Oct 2021.

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APPLIED ECONOMICS
2022, VOL. 54, NO. 15, 1727–1741
https://doi.org/10.1080/00036846.2021.1982128

Liquidity commonality in the cryptocurrency market

Abhinava Tripathia, Alok Dixit b
and Vipulb
a
Department of Management Studies, Indian Institute of Technology Roorkee, Roorkee, India; bFinance and Accounting, Indian Institute of
Management Lucknow, Lucknow, India

ABSTRACT KEYWORDS
Motivated by the unique transaction cost structure of the cryptocurrency (CC) market1, this study Liquidity commonality;
investigates the phenomenon of liquidity commonality across a sample of 53 CCs. The study employs Cryptocurrency; Principal
the google search volume index (GSVI) measure to capture the retail investor’s attention towards the component analysis;
Quantile regression;
CC market. Using the quantile regression method, we document the liquidity dynamics of CCs that is
Transaction costs
contrasting to other asset classes, and is ascribed to its unique transaction cost structure. In view of
the relatively high liquidity commonality levels found in the CC market, this paper sounds a note of JEL CLASSIFICATION
caution to retail investors on episodic non-availability of liquidity in CCs. G12; G14; C33

I. Introduction clustering and bubbles, long memory and heterosce­

dasticity, and regulatory aspects including their role
Cryptocurrency (CC, hereafter) market – an emer­ as a medium of exchange (Corbet et al. 2019; Smith
ging asset class – has witnessed significant and rising and Kumar 2018). However, the liquidity dynamics
investor attention globally. Since the inception of of CCs is relatively less-examined. To the best of our
Bitcoin in 2009 (Nakamoto 2008), the CC market knowledge, few studies examine the liquidity of cryp­
has reached an aggregate capitalization of USD tocurrencies, and most of them focus on Bitcoin
215.58 billion2 – with a CAGR of approximately (Brauneis and Mestel 2018; Dyhrberg, Foley, and
65% over the last six years (2013–19). Svec 2018; Fry 2018; Koutmos 2018; Wei 2018).
Cryptocurrencies are not regulated by state authori­ These currencies are not driven by the economic
ties such as central banks, and therefore, lack the fundamentals (macroeconomic, industry, and firm-
conventional sovereign support. CCs operate on specific factors) that explain conventional asset
a peer-to-peer online payment system between pri­ classes’ liquidity dynamics. Therefore, the liquidity
vate parties, without involving regulatory authorities characteristics of these CCs are expected to differ
and financial intermediaries (Corbet et al. 2019). CC considerably from those of a traditional security.
markets are generally characterized by (a) continuous The conventional demand and supply side determi­
trading on highly fragmented3 and unregulated mar­ nants of liquidity (e.g. trading activity of dealers and
kets, (b) speculative trader base, and (c) dearth of designated market makers, the role of institutional
institutional investors. Unlike traditional markets, investors) become less effective in the context of CC
cryptocurrencies rely on an open-source software markets (Amihud 2002; Amihud & Mendelson,
that creates these currencies, and records and verifies 1986; Chordia, Roll, and Subrahmanyam 2000;
the transactions (mining process, Easley, O’Hara, and Easley, O’Hara, and Basu 2019; Ho and Stoll 1983;
Basu 2019). The stock of cryptocurrencies is increas­ Karolyi, Lee, and Van Dijk 2012; Koch, Ruenzi, and
ing at a diminishing rate that is expected to converge Starks 2016; Stoll 1978; Tripathi, Dixit, and Vipul
to zero by the year 2140. 2019). This makes the liquidity dynamics in CC
In the last 3–5 years, a number of studies have markets unique, and an interesting research proposi­
examined various important strands of CC literature, tion. More importantly, unlike any other asset class,
including security, price efficiency, volatility, price increasing volumes (beyond certain threshold levels)

CONTACT Abhinava Tripathi [email protected] Department of Management Studies, Indian Institute of Technology Roorkee, Roorkee,
India
2
As per the https://coinmarketcap.com/ (accessed on 21-11-2019).
3
Bitcoin alone is traded on more than 350 markets across the world, in various currencies (Wei 2018).
© 2021 Informa UK Limited, trading as Taylor & Francis Group
1728 A. TRIPATHI ET AL.

drive-up the transaction fees in CC markets (Easley, the liquidity of securities. More recent literature
O’Hara, and Basu 2019). Because CC users are has employed Google Search Volume Index
required to pay transaction fees to get their transac­ (GSVI) as a measure of investor attention (Da,
tions posted on blockchain. As the transaction Engelberg, and Gao 2011, 2014; Ding and Hou
volumes rise and transaction processing capacities 2015). We contribute to this literature by adding
are fully utilized, the waiting times for users increase a novel and less explored asset class, that is CCs.
substantially. These users compete for priority to The study makes three important contributions
reduce the waiting time, and in turn, drive-up the to the literature. It is one of the first studies that
transaction fees. The transaction processing priority examines the phenomenon of liquidity common­
is dynamically auctioned by the miners with auction ality in the CC market, employing 53 CCs. The
price being the transaction fee. Higher fees secure study also investigates the effect of investor atten­
higher priority and less waiting time. tion on liquidity dynamics of CCs, using the daily
These unique features of the liquidity in CC GSVI measure. Finally, the study examines com­
markets motivate us to examine the presence of monality across the conditional quantiles of liquid­
a marketwide systematic factor that has been ity, employing the quantile regression framework
widely acknowledged to affect the liquidity of tra­ (Koenker and Bassett 1978; Koenker and Hallock
ditional securities; i.e. the phenomenon of liquidity 2001). The findings of this study suggest
commonality (Chordia, Roll, and Subrahmanyam a significant presence of commonality that is higher
2000). The literature on liquidity commonality has than other asset classes. The results show that
covered a diverse set of markets. These include investor attention has a positive relation with
equity markets (cash and derivatives, developed volume as well as transaction costs. These findings
and emerging markets), fixed income securities are in contrast to those pertaining to other asset
markets, currency markets, and commodity mar­ classes, and may be ascribed to the unique transac­
kets. A summary of some of the most important tion cost structure that is integral to the CC market.
studies on commonality, covering these diverse That is, higher volumes (beyond certain threshold
markets, is provided in Table A1 of Appendix A. levels) drive-up the transaction fees and vice-versa.
These studies document the evidence of liquidity We further show that this property of the CC
commonality and its adverse implications for market attenuates the escalating commonality
investors. The literature on commonality supports levels around the extreme quantiles of liquidity.
the argument that the benefits of portfolio diversi­ The remaining study is organized into four sec­
fication and various other trading strategies disap­ tions. Section 2 describes the data, sample, and
pear when the transaction costs are accounted for, variables, and Section 3 discusses the methodology.
especially when liquidity commonality is high. Section 4 presents the empirical findings, and
However, the liquidity dynamics of CCs remains Section 5 concludes.
less well understood, and in particular, the area of
liquidity commonality of CC markets has not been
II. Data, sample, and variables
explored (Marshall, Nguyen, and Visaltanachoti
2019). Hence, the results from this study are parti­ Daily price and volume data of cryptocurrencies
cularly important to investors that are primarily are provided by the Coinmarketcap website (www.
driven towards CCs by their portfolio concerns. coinmarketcap.com). Coinmarketcap aggregates
This study provides evidence on the phenomenon the trading activity of more than 2,200 cryptocur­
of liquidity commonality in the context of the CC rencies across about 8,900 exchanges. It computes
market, using 53 cryptocurrencies. the volume-weighted average price of cryptocur­
Another strand of literature examines the role of rency, converted into USD. We select the 53 cryp­
investor attention on security prices and liquidity tocurrencies among the top-500 for which the
(Barber and Odean 2007; Ding and Hou 2015; trading history is available for the period spanning
Hirshleifer, Lim, and Teoh 2011). The literature 1 January 2017–31 October 2019. These currencies
suggests that increasing investor attention comprise about 85% of the total cryptocurrency
decreases information asymmetry and improves market capitalization (Table 1). Out of these 53
 APPLIED ECONOMICS 1729

CCs, there are 49 coins and 4 tokens (Tether, their symbols (e.g. BTC) for all the CCs in our
Augur, Maidsafe, and Golem).4 The descriptive sample set. Prior studies, however, have relied on
statistics of the top-5 currencies are provided in weekly and monthly search volume index data to
Table 2. proxy retail investor attention.
For measuring the liquidity of CCs, we use The descriptive statistics for these liquidity mea­
widely employed proxies of bid-ask spread that sures (for the top-5 currencies) are provided in
can be calculated using the daily price and Table 3. The average-correlations (averaged over
volume5 data. These are Amihud measure the 53 CC’s) across these measures are reported in
(Amihud 2002; ‘Amihud’), high-low price measure Table 4. Furthermore, average-correlations of these
(Corwin and Schultz 2012; ‘CS’), high-low-close measures with GSVIs (search terms:
range measure (Będowska-Sójka 2018; ‘RHL’), ‘Cryptocurrency’ and ‘Bitcoin’) are also shown.
high-low range measure (Chung and Zhang 2014; GSVIs exhibit a positive correlation with volume
‘HLR’), and volatility over volume measure (Fong, measure and various spread measures. The positive
Holden, and Tobek 2018; ‘VOV’). The formulae for correlation with spread measures are contradictory
these measures are as follows: to those observed in cases of other asset classes. It
jrt j
(a) Amihud t ¼ logðvolumet Þ suggests that high investor attention is related to
2ðeαt 1Þ
(b) CSt 1þeαt ; increasing volumes along with increasing transac­
where, tion costs. Since the keyword ‘Cryptocurrency’ is
pffiffiffiffiffiffi pffiffiffiffi rffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi � � �� 2 a broad keyword associated with the asset class, we
2βt βt γt Ht may expect it to exhibit a higher correlation than
αt ¼ pffiffi pffiffi ; βt ¼ In
3 2 2 3 2 2 Lt the keyword ‘Bitcoin’, which is related to an indi­
� � �� 2 � � vidual (though major) currency.
Ht þ 1 maxfHt ; Htþ1 g
þ In and γt ¼ In
Lt þ 1 minfLt ; Ltþ1 g
III. Methodology
The study follows two approaches to measure com­
(c) RHLt ¼ HCtt L1t monality: (a) Principal component and canonical
Ht Lt
(d) HLRt ¼ 0:5ðH t þLt Þ correlation analyses approach of Hasbrouck and
�
ln L t
H
Seppi (2001), using the liquidity and GSVI mea­
(e) VOVt ¼ pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
t
sures in normalized form.6 (b) Market model of
logðvolumet Þ
CRS (2000) shown in Equation (1), which is further
Here, Ht , Lt ,Ct , and volumet are high, low, clos­ augmented [Equation (2)] with control variables
ing prices, and volume on day t; rt is the price [GSVI for CC full name/symbol, and return and
return on day t based on closing prices. We also volatility7 �of individual CC and the market]. Here,
employ the daily Google Search Volume Index �
Li;t
(GSVI) for these CCs as a proxy of investor atten­ DLi;t ¼ ln Li;t 1 denotes the daily changes in the
tion (Da, Engelberg, and Gao 2011, 2014). Given liquidity of the i-th Cryptocurrency (CC) from day
the dominance of retail investors in CC market, the t-1 to day t, and is the liquidity variable of interest
GSVI measure of investor attention appears to be (Chordia, Roll, and Subrahmanyam 2000; Karolyi,
a reasonable choice. We use daily GSVIs corre­ Lee, and Van Dijk 2012; Marshall, Nguyen, and
sponding to full currency names (e.g. Bitcoin) and Visaltanachoti 2013). Li;t is the liquidity measure
4
While the term ‘token’ is often employed interchangeably with ‘coin’, there are important differences (Howell, Niessner, and Yermack 2018; Tasca 2019).
Tokens (e.g. Tether) are CCs that do not have their own blockchain networks. Unlike coins, tokens do not act as a store of value, as they derive value from
some other asset (similar to derivatives). That is, they digitally represent some other asset (such as gold, U.S. Dollar). Moreover, unlike coins, tokens are not
mined. For example, Tether operates on the Ethereum network. It digitally represents the U.S. Dollar, and therefore, derives its value from the U.S. Dollar. The
inclusion of tokens in the study is supported on two grounds. (a) Tokens operate on the same blockchain network as coins (predominantly Ethereum and
Binance Coin) and trade on the CC markets. (b) The investor profile remains similar for both the CCs, i.e. tokens and coins. Therefore, if observed, the presence
of commonality can be largely ascribed to the CC market microstructure and similar investor profile.
5
The volume measure is computed as the natural log of the daily dollar trading volume.
6
The normalization procedure involves scaling the difference between the observation and time-series mean by the standard deviation of the series.
7
Return-squares are employed to proxy volatility. The results remain qualitatively similar with the application of conditional volatility obtained from GARCH
models (not reported here for brevity).
1730 A. TRIPATHI ET AL.

Table 1. Details of cryptocurrencies (sourced from

Coinmarketcap.com on 21–11-2019).
market liquidity variable, DLM;t :DSVIt ¼
h i
Market Cap Market Price GSVI
No. Name Symbol (USD) share (USD) ln GSVIi;ti;t 1 is the measure of investor attention,
1 Bitcoin BTC 138,008,986,483 65.14% 7,641.67 constructed using daily GSVIs. ri;t , rM;t , σ i;t , and
2 Ethereum ETH 17,506,660,541 8.26% 161.14
3 Ripple XRP 10,474,509,984 4.94% 0.24 σ M;t are the returns and standard deviations of
4
5
Tether
Litecoin
USDT
LTC
4,127,454,673
3,208,410,841
1.95%
1.51%
1.00
50.35
individual CCs and the market (at aggregate level).8
6 Stellar XLM 1,235,614,975 0.58% 0.06
7 Monero XMR 940,885,373 0.44% 54.33
8 NEO NEO 763,365,780 0.36% 10.82
DLi;t ¼ αi þ β1 DLM;t þ β2 DLM;tþ1 þ β3 DLM;t 1 þ εi;t
9 Dash DASH 560,241,051 0.26% 61.13 (1)
10 Ethereum Classic ETC 478,498,117 0.23% 4.15
11 NEM XEM 343,130,203 0.16% 0.04
12 Dogecoin DOGE 292,695,461 0.14% 0.00
13 Zcash ZEC 246,707,888 0.12% 31.23
14 Decred DCR 201,713,753 0.10% 18.84
DLi;t ¼ αi þ β1 DLM;t þ β2 DLM;tþ1 þ β3 DLM;t 1
15 Augur REP 126,978,131 0.06% 11.54 þ β4 DSVIi;t þ β5 σ 2i;t þ β6 ri;t þ β7 σ 2M;t
16 Lisk LSK 84,941,091 0.04% 0.70
17 DigiByte DGB 84,359,289 0.04% 0.01 þ β8 rM;t þ εi; t
18 Siacoin SC 69,134,218 0.03% 0.00
19 Waves WAVES 65,549,958 0.03% 0.65 (2)
20 Verge XVG 61,428,551 0.03% 0.00
21 Bytecoin BCN 57,914,953 0.03% 0.00
22 MaidSafeCoin MAID 50,708,178 0.02% 0.11
23 Ardour ARDR 47,248,803 0.02% 0.05
24 Steem STEEM 43,748,776 0.02% 0.12
25 Golem GNT 39,180,447 0.02% 0.04 Quantile regression approach to the CRS (2000)
26 Zcoin XZC 36,293,136 0.02% 4.10 model
27 EDC Blockchain EDC 35,962,451 0.02% 0.01
28 Stratis STRAT 29,070,509 0.01% 0.29
29 Factom FCT 25,913,483 0.01% 2.71 The quantile regression approach is particularly
30 DigixDAO DGD 25,610,602 0.01% 12.81 relevant in the modelling of conditional quantiles
31 ReddCoin RDD 21,956,553 0.01% 0.00
32 Obyte GBYTE 14,385,233 0.01% 19.81 (Koenker and Hallock 2001; Koenker and Xiao
33 Groestlcoin GRS 13,905,346 0.01% 0.19 2006). First, the quantile approach is well suited
34 Nexus NXS 13,697,147 0.01% 0.21
35 Vertcoin VTC 12,540,412 0.01% 0.24 to handle nonlinear relationships that are expected
36 Syscoin SYS 12,195,744 0.01% 0.02 to emerge across different liquidity regimes
37 PIVX PIVX 11,780,288 0.01% 0.21
38 Nxt NXT 11,115,121 0.01% 0.01 (Brunnermeier and Pedersen 2008). The approach
39 Unobtanium UNO 9,490,384 0.00% 47.15
40 FirstBlood 1ST 9,054,553 0.00% 0.11
also offers robustness to estimations around the
41 Einsteinium EMC2 8,963,029 0.00% 0.04 extreme quantiles of distribution. This is so
42 bitCNY BITCNY 7,450,027 0.00% 0.14
43 Incent INCNT 6,248,470 0.00% 0.14 because security prices often exhibit issues such as
44 Namecoin NMC 5,864,712 0.00% 0.40 heteroscedasticity, skewness, and excess kurtosis,
45 Peercoin PPC 5,306,171 0.00% 0.21
46 NavCoin NAV 5,267,648 0.00% 0.08 particularly around extreme quantiles of
47 Burst BURST 5,049,627 0.00% 0.00 distribution.
48 SaluS SLS 5,028,641 0.00% 4.97
49 SingularDTV SNGLS 4,814,879 0.00% 0.01 The models [Equations (1) and (2)] are reesti­
50 Blocknet BLOCK 4,788,907 0.00% 0.76 mated with the quantile regression approach of
51 MintCoin MINT 4,239,529 0.00% 0.00
52 DigitalNote XDN 3,937,616 0.00% 0.00 Koenker (2012). The 0 τ th0 conditional quantile
53 BitBay BAY 3,243,506 0.00% 0.00
function (0 < τ < 1) of the liquidity measure,
DLi;t [QDLi;t (τ|
DLM;t ; DLM;t 1 ; DLM;tþ1 ; DSVIi;t ; σ i;t ; ri;t ; σ M;t ; rM;t Þ�
for the i-th CC at time t. The cross-sectional aver­ , is modelled as the linear function of market
age of DLi;t across all the sample CCs represents the liquidity (contemporaneous, lead, and lag), search

8
Prior literature has suggesed the inclusion of lead and lag terms in such market model regressions (Dang et al. 2015; Galariotis and Giouvris 2007; Karolyi, Lee,
and Van Dijk 2012; Kempf and Mayston 2008; Marshall, Nguyen, and Visaltanachoti 2013; Moshirian et al. 2017). For example, Chordia, Roll, and
Subrahmanyam (2000) state that ‘the leads and lags are designed to capture any lagged adjustment in commonality.’ Infrequent trading introduces bias
in the market model regressions of the kind employed in this study (Dimson 1979). The recorded price and volume information across securities (CCs in this
study) may be non-synchronous, and therefore, any market index constructed from such data is an average of temporally ordered values of the securities.
Thus, the covariance of less frequently traded securities with the market is underestimated and vice-versa. To account for this bias, Dimson (1979) proposed
the aggregated coefficients (AC) method that employs lead, lag, and contemporaneous terms of the market variable. Dimson (1979) argued that infrequently
traded securities exhibit higher covariance with the lagged market term. In contrast, heavily traded securities show higher covariance with the leading market
term. Therefore, the non-inclusion of lead and lag terms may vitiate the estimation.
 APPLIED ECONOMICS 1731

Table 2. Descriptive statistics for price returns and unit root tests.
BTC ETH XRP USDT LTC
Panel A: Descriptive statistics for return series
Observations 1,034 1,034 1,034 1,034 1,034
Mean 0.22% 0.30% 0.37% 0.00% 0.25%
Median 0.29% 0.03% −0.29% 0.00% −0.08%
Maximum 22.51% 29.01% 102.74% 5.72% 51.03%
Minimum −20.75% −31.55% −61.63% −4.74% −39.52%
Std. Dev. 4.39% 5.90% 8.10% 0.72% 6.44%
Skewness −0.07 0.23 2.81 0.21 1.13
Kurtosis 6.30 6.96 37.65 12.85 12.11
JB# 470.66*** 685.08*** 53,101.42*** 4,188.24*** 3,794.48***
ARCH(1)+ 40.20*** 49.39*** 87.53*** 166.52*** 18.23***
ARCH(5) 59.00*** 94.02*** 97.81*** 172.70*** 29.29***
Panel B: Unit root test statistics
ADF@ −9.02*** −8.85*** −8.26*** −11.44*** −9.31***
PP& −1061.66*** −1128.32*** −1229.57*** −1269.36*** −1064.73***
The table presents descriptive statistics for the top-5 currencies (by market-capitalization) in the sample, over the study period
(1 January 2017 to 31 October 2019).
Notes:
#
Jarque Bera statistic for the significance of skewness and kurtosis differing from a normal distribution
+
Engle’s ARCH Lagrange Multiplier (LM) test
@
Augmented Dicky-Fuller test
&
Phillips-Perron test
*, ** and *** indicate significance at the 10%, 5% and 1% levels, respectively.

volume index, return and standard deviation of IV. Empirical results

individual security and market terms, for different
The following correlation analysis alludes to the
values of τ (=.05, 0.10, 0.15 . . . .0.95), as follows.
presence of commonality across CCs. We compute
the values of Pearson correlation coefficient for all
DLi;t ½QDLi;t ðτj DLM;t ; DLM;t 1 ; DLM;tþ1 Þ�
possible pairs of CCs, for all the liquidity measures
¼ β0 ðτ Þ þ β1 ðτÞDLM;t þ β2 ðτÞDLM;tþ1
employed in the study. Among these correlations,
þ β3 ðτÞDLM;t 1 (3)
88%, 95%, 95%, 96%, 98%, and 97% are positive for
volume, Amihud, CS, RHL, HLR, and VoV mea­
DLi;t ½QDLi;t ðτj DLM;t ; DLM;t 1 ; DLM;tþ1 ; DSVIi;t ; σ i;t ; ri;t ; σ M;t ; rM;t Þ� sures, with average values of 0.37, 0.21, 0.13, 0.21,
¼ β0 ðτÞ þ β1 ðτÞDLM;t þ β2 ðτÞDLM;tþ1 þ β3 ðτÞDLM;t 1 0.32, and 0.29, respectively.
þ β4 ðτÞDSVIi;t þ β5 ðτÞσ i;t þ β6 ðτÞri;t þ β7 ðτÞσ M;t To further examine the issue of commonality,
þ β8 ðτÞrM;t
first, we perform principal component analysis
(4)
across CCs, for all the liquidity measures (volume,
The 0 τ th0 conditional quantile of the stochastic Amihud, CS, RHL, HLR, and VOV). The results are
error term is minimized in the quantile regression presented in Panel A (Table 5). The first principal
estimation process. The coefficients βi ðτÞ’s repre­ component (PC1) indicates a high level of common­
sent the quantile specific coefficients of the respec­ ality across CCs, for all the liquidity measures. In
tive variables. particular, the volume measure exhibits a common
For the implementation of the method, the variation of 43.66%. Next, we examine the common­
‘Quantreg R package’ developed by Koenker ality in GSVIs for the top-10 and all (53) CCs,
(Koenker 2012; Koenker et al. 2018) is employed. separately. The keyword terms are (a) full name of
The goodness-of-fit measure for the quantile CC (e.g. Bitcoin) and (b) symbol of CC (e.g. BTC).
regression framework (R) is provided in the The commonality levels across GSVIs are shown in
‘WRTDStidal’ package. The function is similar to Panel B (Table 5). The levels of commonality in
the conventional R2 measure. It is computed as one GSVIs are high, particularly for the top-10 CCs.
minus the ratio of appropriately weighted sum of Finally, we also examine the canonical correlations
absolute deviations from the conditional model to [CCAs, shown in Panel C (Table 5)] between the
that from the unconditional model (Koenker and liquidity measures (volume, Amihud, CS, RHL,
Machado 1999). HLR, and VOV) and GSVIs (full name and symbol).
1732 A. TRIPATHI ET AL.

Table 3. Descriptive statistics for daily liquidity measures. the retail investor attention across CCs is driven by
BTC ETH XRP USDT LTC a set of similar factors, and may contribute to the
Observations 1,031 1,031 1,031 1,031 1,031
Panel A: Volume measure [log(volume)] commonality in liquidity.
Mean 22.11 18.76 19.43 20.91 19.85 Next, we follow the market model of CRS (2000)
Median 22.35 19.07 19.86 21.69 19.83
Maximum 24.53 21.27 22.93 24.70 22.66 to examine the commonality. The regressions are
Minimum 17.92 12.64 12.35 13.43 14.78 performed in the fixed-effect panel data frame­
Std. Dev. 1.38 1.64 2.01 2.52 1.71
Panel B: Amihud measure (%)
work, and t-statistics are computed using robust
Mean 0.14% 0.24% 0.23% 0.03% 0.21% standard errors.9 The results are shown in Table 6.
Median 0.09% 0.15% 0.12% 0.02% 0.14%
Maximum 1.00% 2.34% 5.34% 0.27% 2.68% Panels A and B present the results with and without
Minimum 0.00% 0.00% 0.00% 0.00% 0.00% control variables. For brevity, we show the details
Std. Dev. 0.14% 0.27% 0.34% 0.03% 0.24%
only for the contemporaneous market liquidity and
Panel C: CS measure (%)
Mean 1.65% 2.59% 2.73% 1.05% 2.32% DGSVI measures. The contemporaneous market
Median 1.33% 2.10% 2.15% 0.97% 1.91%
Maximum 18.98% 25.18% 58.20% 7.88% 16.45%
liquidity coefficient is significantly positive for all
Minimum 0.00% 0.00% 0.00% 0.00% 0.00% the liquidity measures and different model specifi­
Std. Dev. 1.42% 2.31% 3.44% 0.74% 1.73%
cations. This suggests that, indeed, there is
Panel D: RHL measure (%)
Mean 5.39% 8.35% 8.54% 1.97% 7.78% a significant presence of liquidity commonality in
Median 4.19% 6.22% 5.58% 1.66% 6.06% the CC market. The results from the pool regres­
Maximum 27.75% 78.73% 227.23% 20.19% 68.97%
Minimum 0.39% 0.93% 0.92% 0.00% 0.52% sion model are qualitatively similar, and therefore,
Std. Dev. 4.25% 6.97% 11.47% 1.61% 6.64%
not reported for brevity. These results [shown in
Panel E: HLR measure (%)
Mean 1.35% 2.08% 2.07% 0.49% 1.93% Panel C (Table 6)] suggest that the majority of the
Median 1.05% 1.54% 1.40% 0.41% 1.51% CCs exhibit a positive and significant coefficient for
Maximum 7.59% 14.24% 26.71% 4.75% 13.08%
Minimum 0.10% 0.23% 0.23% 0.00% 0.13% the contemporaneous market liquidity measures.
Std. Dev. 1.08% 1.72% 2.26% 0.40% 1.57% To examine the robustness of these results, the
Panel F: VOV measure (%)
Mean 1.15% 1.92% 1.88% 0.43% 1.73% CRS (2000) model regressions [Equations (1) and
Median 0.89% 1.43% 1.28% 0.36% 1.35% (2)] are estimated separately across individual CCs.
Maximum 6.29% 13.16% 27.16% 4.37% 12.10%
Minimum 0.09% 0.22% 0.21% 0.00% 0.13% The regression coefficients of DGSVI measure
Std. Dev. 0.91% 1.56% 2.07% 0.36% 1.40% (Panel B, Table 6) are consistently positive and
The table provides summary statistics for various daily liquidity measures for significant for most of the liquidity measures,
the top five CCs (by market-capitalization), for the study period
(1 January 2017 to 31 October 2019). which is contradictory to the results of earlier stu­
dies. Previous studies on conventional asset classes
suggest that this measure has a negative relation
with spread measures. These studies argue that
Canonical correlations indicate that liquidity mea­ increasing investor attention leads to higher trad­
sures and GSVIs share a significant positive common ing volumes and less information asymmetry, and
variation. Overall, the results from CCA suggest that hence, an improvement in liquidity (Adachi,

Table 4. Correlation across liquidity measures and google search volume.

Volume Amihud CS RHL HLR VOV GSV1 GSV2
Volume 100.00% −9.56% −27.90% −11.87% −16.88% −27.15% 8.75% 5.82%
Amihud −9.56% 100.00% 17.12% 20.28% 22.64% 49.06% −0.11% 0.36%
CS −27.90% 17.12% 100.00% 37.25% 52.78% 55.85% 1.21% 3.95%
RHL −11.87% 20.28% 37.25% 100.00% 84.22% 81.63% 2.35% 5.46%
HLR −16.88% 22.64% 52.78% 84.22% 100.00% 91.97% 4.12% 8.95%
VOV −27.15% 49.06% 55.85% 81.63% 91.97% 100.00% 2.24% 6.40%
GSV1 8.75% −0.11% 1.21% 2.35% 4.12% 2.24% 100.00% 88.63%
GSV2 5.82% 0.36% 3.95% 5.46% 8.95% 6.40% 88.63% 100.00%
The table provides average-correlation across various measures of liquidity for the 53 CCs, over the study period (1 January 2017 to 31 October 2019). Volume
measure is computed as the natural log of daily dollar trading volume. GSV1 and GSV2 indicate the daily google search volume index measures for the
keywords ‘Cryptocurrency’ and ‘Bitcoin’ respectively.

9
Heteroscedasticity and autocorrelation consistent (HAC) robust standard errors.
 APPLIED ECONOMICS 1733

Table 5. Commonality in the CCs using Principal Component and mean may not fully capture the liquidity dynamics
Canonical Correlation analyses. in CCs. To capture this aspect of commonality, we
PC1 PC2 PC3
employ the quantile regression methodology. The
Panel A: Common variation in liquidity measures explained by the first
three principal components (PC’s) results from CRS (2000) model [Equation (1)]10 in
Volume 43.66% 20.90% 4.24% a quantile regression framework are summarized in
Amihud 26.44% 3.68% 3.27%
CS 16.91% 3.82% 3.12% Figure 1 (detailed results are provided in Table B1,
RHL 27.05% 3.84% 3.59% Appendix B). We show the t-statistic for the coeffi­
HLR 36.74% 3.69% 3.15%
VOV 34.69% 4.21% 3.15% cient of contemporaneous market liquidity and
Panel B: Common variation in GSVI measures explained by the first three
goodness-of-fit measure for all the liquidity mea­
principal components (PC’s) sures, in Panels A and B.11 These results suggest
Full name of CC that the liquidity behaviour for the extreme quan­
Top-10 CCs 43.09% 19.70% 13.49% tiles (i.e. large positive and negative liquidity
All 53 CCs 30.78% 9.13% 7.35%
Symbol of CC changes) differs considerably from that during nor­
Top-10 CCs 46.19% 17.11% 10.95%
All 53 CCs 24.04% 9.54% 9.26%
mal liquidity conditions. Relatively lower com­
Panel C: First two canonical correlations (CVs) between all the liquidity
monality is observed for the top and bottom
measures and GSVIs deciles than that for the other quantiles. The plau­
Coefficient (%) Chi-square sible reasons for this behaviour are as follows.
Top-10 CCs During the times of extreme positive volume
CV1 18.41*** 405.29
CV2 6.95*** 49.92 changes in CCs, driven by marketwide systematic
All (53) CCs shocks, the transaction costs also increase. The
CV1 18.38*** 1,841.50
CV2 5.01*** 125.56 excessive increase in transaction costs impedes
*, ** and *** indicate significance at the 10%, 5% and 1% levels, respectively. the trading activity in CC market, and weakens
Panels A and B report the highest common variation explained by the first
three principal components (PCs), for the volume (natural log of dollar the effect of marketwide systematic factor.
trading volume), Amihud, CS, RHL, HLR, and VOV measures, and GSVIs. For Conversely, during the extreme negative volume
GSVIs, we report the PCAs for the top-10 and all the (53) CCs. The GSVI
keyword search involves two sets, namely, (a) full currency name (e.g. changes, the transaction costs may come down.
Bitcoin) and (b) symbol (e.g. BTC). Panel C presents the first two canonical This may boost the trading activity in CC market,
correlations (CCAs: CV1 and CV2) and corresponding Chi-square statistics
between the set of two covariates comprising liquidity measures (Volume, and in turn, may neutralize the effect of negative
Amihud, CS, RHL, HLR, and VOV) and GSVI measures (full name and
symbol). The CCAs are presented for the top-10 and all the CCs.
marketwide liquidity shocks. This causes the beha­
viour of liquidity commonality in CC markets to be
Masuda, and Takeda 2017; Bank, Larch, and Peter different from that for conventional asset classes.
2011; Ding and Hou 2015). Our results indicate The levels of commonality are higher than those
that increasing investor attention, though posi­ found for other asset classes. However, in contrast
tively related to volume, also has a positive rela­ to conventional assets, it decreases for the periods
tionship with bid-ask spreads. This contrasting of liquidity shocks.
result for the CC market can be ascribed to the In summary, we ascribe the higher levels of com­
unique nature of its transaction cost, which monality in CC markets to the following demand
increases with an increase in volumes beyond cer­ and supply related factors. First, the process of
tain threshold levels. mining that governs the supply of cryptocurrencies
is similar across all these currencies. Second, even
though these currencies are traded across a number
Quantile approach to commonality
of markets, the transaction costs essentially reflect
The dynamic transaction costs of CC markets make the computational resources spent on mining these
the commonality in these markets time-varying, currencies and may exhibit uniformity due to similar
and dependent on market liquidity conditions. blockchain management protocols. This leads to an
Hence, the methodologies based on conditional artificial similarity in the microstructure design of all

10
Results from Equation (2) are qualitatively similar, and not reported for brevity.
11
The goodness-of-fit measure in quantile regression framework is provided by the ‘goodfit’ function in the package ‘WRTDStidal’. In nature, this function is
similar to the conventional R2 measure from regression. The statistic is calculated as one minus the ratio of the appropriately weighted sum of absolute
deviations from the conditional model to that from the unconditional model.
1734 A. TRIPATHI ET AL.

Table 6. Liquidity commonality across CCs, using CRS (2000) market model regressions.
Panel A: Results for market model regressions without control variables
Market Liquidity
Number of observations Coefficient t-statistic adjusted:R2 (%) F-value
Volume 49,958 1.001*** 25.33 9.94% 219.94***
Amihud 49,958 0.993*** 27.65 19.85% 299.99***
CS 49,958 1.000*** 32.60 5.82% 361.56***
RHL 49,958 0.996*** 36.63 24.78% 454.33***
HLR 49,958 1.012*** 37.33 28.35% 469.91***
VOV 49,958 1.011*** 36.44 28.59% 444.85***
Panel B: Results for market model regressions with control variables
Market Liquidity DGSVI
Number of observations Coefficient t-statistic Coefficient t-statistic adjusted:R2 (%) F-value
Volume 49,958 0.987*** 25.20 0.125*** 7.81 20.54% 179.42***
Amihud 49,958 0.998*** 26.73 0.093*** 4.54 20.84% 180.35***
CS 49,958 1.001*** 32.59 −0.013 −0.69 5.82% 194.86***
RHL 49,958 0.996*** 37.81 0.088*** 7.47 31.65% 316.13***
HLR 49,958 0.996*** 37.05 0.084*** 7.49 32.08% 353.43***
VOV 49,958 1.002*** 35.74 0.082*** 7.38 32.06% 340.00***
Panel C: Robustness tests (Chordia, Roll, and Subrahmanyam 2000)for the sign and significance of market liquidity measures
Without control [Equation (1)] With control [Equation (2)]
Positive and Positive and Positive and Positive and
significant insignificant significant insignificant
Volume 50 2 50 3
Amihud 51 2 51 2
CS 52 1 52 1
RHL 52 1 52 1
HLR 52 1 52 1
VOV 52 1 52 1
*, ** and *** indicate significance at the 10%, 5% and 1% levels, respectively.
Panels A and B summarize the results of market model regressions in the panel fixed-effect framework [Equations (1) and (2)]. Results include the regression
2
coefficients and their t-statistics for the market liquidity (and DGSVI measure),�adjusted:
� R , F-statistics, and the number of observations. For brevity, the table
GSVIt
does not report the statistics pertaining to control variables. DGSVI [ ¼ ln GSVIt 1 � measure reported in Panel B is google search volume index (GSVI)
corresponding to the ‘full name’ of currency. The other variant of the GSVI measure corresponding to the symbol of the currency yields similar results (not
reported for brevity). Following Chordia, Roll, and Subrahmanyam (2000), the regression models [Equations (1) & (2)] are also estimated separately on the
individual CCs (53). In Panel C, we report the number of CCs for which the t-statistics for market liquidity measures (volume, Amihud, CS, RHL, HLR, and VOV)
are positive and significant, and positive but not significant.

the CCs. Moreover, the majority of market partici­ that the behaviour of commonality is significantly dif­
pants in these cryptocurrencies share common traits; ferent around extreme quantiles than that observed
these are tech-savvy committed retail investors that during normal conditions. We contend that the unique
broadly fall under the definition of noise-traders transaction cost structure integral to the CC market –
(influenced by behavioural biases such as overconfi­ increasing volumes beyond certain thresholds driving
dence and the representative heuristics; Barber, up the transaction costs – attenuates the escalating
Odean, and Zhu 2008). We argue that a set of similar commonality around extreme liquidity quantiles.
factors (e.g. news reports, attention-grabbing public Moreover, investor attention – measured using
events) attract the attention of these retail investors, GSVI – appears to play an important role in driving
and in turn, contribute to liquidity commonality. the liquidity commonality in CCs. The results suggest
that the rising investor attention relates positively to the
spread measures (i.e. illiquidity). The observed relation­
V. Conclusion ship between the liquidity and investor attention is in
This paper investigates the phenomenon of liquidity contrast to that observed for other asset classes, and
commonality in the cryptocurrency (CC) market, may be ascribed to the unique transaction cost struc­
using 53 CCs. The results show that CCs exhibit higher ture of the CC market. Portfolio managers are particu­
commonality compared to other asset classes. The larly concerned about the liquidity commonality
quantile regression approach to commonality suggests behaviour around extreme quantiles, as the rising
 APPLIED ECONOMICS 1735

Figure 1. Quantile regression results [Equation (1)] across the conditional quantiles of liquidity. Note: The figure summarizes
the results from the model [Equation (1)] in a quantile regression framework, across the conditional quantiles of liquidity. The time
series of the daily changes in the aggregate (market) liquidity of CCs (contemporaneous, lead, and lag) act as the independent
variables. The corresponding values of the daily changes in the liquidity of individual CCs act as the dependent variable. Panels A &
B show the t-statistics and goodness-of-fit measure (GoF), respectively. The results are shown for the volume, Amihud, CS, RHL, HLR,
and VOV measures.The horizontal axis represents 20 quantiles with increments of 0.05. The goodness-of-fit measure is calculated as
one minus the ratio of the appropriately weighted sum of absolute errors (deviations) from the conditional model and that from the
unconditional model. The goodness-of-fit measure in the quantile regression framework is provided by the ‘goodfit’ function in the
package ‘WRTDStidal’. In nature, this function is similar to the conventional R2 measure for regression. Detailed results corresponding
to this figure are provided in Table B1 of Appendix B.

transaction costs can offset the diversification benefits. manuscript has been read and approved by all named authors
Therefore, the results from this study are useful to and that there are no other persons who satisfied the criteria
investors as well as academics interested in alternative for authorship but are not listed. I further confirm that the
order of authors listed in the manuscript has been approved
asset classes such as CCs. by all of us. I understand that the Corresponding Author is the
sole contact for the Editorial process and is responsible for
communicating with the other authors about progress, sub­
Confirmation of corresponding author missions of revisions and final approval of proofs.

As Corresponding Author, I Abhinava Tripathi, regarding the

paper submitted under the title ‘Liquidity commonality in the Declation of interest
cryptocurrency market’, declare that the manuscript is origi­
nal, has not been published before and is not currently being We wish to confirm that there are no conflicts of interest
considered for publication elsewhere. I can confirm that the associated with this publication.
1736 A. TRIPATHI ET AL.

Disclosure statement Chordia, T., A. Sarkar, and A. Subrahmanyam. 2004. An

empirical analysis of stock and bond market liquidity. The
No potential conflict of interest was reported by the author(s). Review of Financial Studies, 18(1): 85–129.
Chung, K. H., and H. Zhang. 2014. “A Simple Approximation of
Intraday Spreads Using Daily Data.” Journal of Financial Markets
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Comerton-Forde, C., T. Hendershott, C. M. Jones, P.C.
The authors received no financial support for the research, Moulton, and M.S. Seasholes. 2010. “Time variation in
authorship, and publication of this article. liquidity: The role of market-maker inventories and reven­
ues.” The Journal of Finance, 65(1): 295–331.
Corbet, S., B. Lucey, A. Urquhart, and L. Yarovaya. 2019.
ORCID “Cryptocurrencies as A Financial Asset: A Systematic
Analysis.” International Review of Financial Analysis
Alok Dixit http://orcid.org/0000-0002-6781-1102 62: 182–199. doi:10.1016/j.irfa.2018.09.003.
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1738 A. TRIPATHI ET AL.

Appendix A

Table A1: Literature survey on liquidity commonality.

Study Data, variables, and methodology Evidence
Chordia, Roll, and 1169 stocks listed on NYSE are examined for a period of 254 days. The individual firm-specific regressions report low levels of
Subrahmanyam Measures: QS, PQSPR, Depth, ES, PESPR. Method: Market model of commonality (adj.R2 in the range of 1–4%). However, the
(CRS, 2000) CRS. observed levels of commonality increase significantly in the
portfolio regressions, as the firm-specific effects are offset
(adj.R2 in the range of 15%-80%).
Brockman and All the 725 firms listed on SEHK, over the sample period from 1996 to The paper documents the presence of commonality in the
Chung (2002) 1999 (903 trading days). Measures: RS, AS, volume, depth. Method: Hong-Kong market, a pure order-driven market, devoid of
Market model of CRS designated market makers.
Pástor and Stocks listed on NYSE/AMEX over the period 1966–1999. Measures: Marketwide aggregate liquidity is a priced factor. Smaller
Stambaugh Monthly liquidity measure constructed from daily return volume stocks are less liquid and have high sensitivity to
(2003) data. Method: Fama-French four-factor model. marketwide liquidity.
Coughenour and 470 stocks traded on NYSE are examined over the 19-month period The study finds that individual stock liquidity co-varies with
Saad (2004) ending December 2000. Measure: ES, PES, QS, PQS. Method: Market the specialist portfolio liquidity (adj.R2 of 22%). This co-
model of CRS variation increases with the risk of liquidity provision.
Overall, the evidence suggests that commonality in
liquidity is generated by common market makers.
Chordia, Sarkar, and Treasury bond market (GovPX Inc.) and equity market data (NYSE) is The study finds evidence to suggest that common factors
Subrahmanyam examined over the period 1991–1998. Measures: Time-weighted drive liquidity and volatility in these markets. The study also
(2004) average quoted spread, depth, OIB. Method: Vector auto- examines the linkage between the macro (Fund-flow) and
regressions (VAR) model. micro (transactions) liquidity.
Domowitz, Hansch, Stocks traded on ASX-20 for 211 days (March 2000 to Liquidity commonality is driven by supply and demand of
and Wang (2005) December 2000). Measure: Round-trip transaction cost, supply and liquidity (i.e. correlation in market and limit order flows). In
demand schedules of the limit-order book. Method: Simulation, contrast, return commonality is driven by order direction
correlations. OLS regressions. (buy vs. sell).
Galariotis and FTSE100 securities are examined over the period 1996–2001. The study examines the presence of systematic marketwide
Giouvris (2007) Measures: AS, RS. Method: Market model of CRS. liquidity for the U.K. market, in the context of changing
microstructure from quote-driven to order-driven.
Korajczyk and 4055 NYSE listed stocks are examined for the period 1983 to 2000. They find the presence of a common liquidity factor,
Sadka (2008) Measures: Amihud (2002) measure, Turnover (ratio of monthly particularly in the spread measures and the fixed
traded volume and shares outstanding), QS, ES, impact cost component of the impact cost. Almost 50% of the variation
measures (λ; ΨÞ. Method: Factor decompositions, Asymptotic in individual firm spreads is explained by the first three
principal components (APC) and Expectation maximization (EM) principal components. This systematic factor in liquidity
exhibits persistence, with highly autocorrelated lagged
terms. Lastly, they also find that across-measure of
systematic risk carries a significant premium.
Kamara, Lou, and Stocks listed on NYSE/AMEX (73,933 firm-year observations) over the The paper shows that the behaviour of systematic liquidity
Sadka (2008) period 1963–2005, are examined. Measures: Amihud (2002) vis-à-vis small and large stocks has evolved differently. This
Method: Market model of CRS. divergence is ascribed to the increasing institutional
ownership in the U.S. market.
Kempf and Mayston 30 stocks from DAX30 (listed on Frankfurt Stock Exchange- Germany) The study examines liquidity commonality beyond the best
(2008) are examined for a 3-month period 2004. Measures: AS, RS, and prices, capturing the systematic component of liquidity in
depth. Method: Market model of CRS. large trades.
Hameed, Kang, and 1800 Stocks listed on NYSE are examined for the period 1988 to 2003. The paper shows that commonality increases during the
Viswanathan Measures: PQSPR, PESPR. Method: OLS time-series regressions. period of market declines. They also document that
(2010) commonality is positively related to market volatility but
unrelated to idiosyncratic volatility. Overall, the evidence
suggests the presence of a contagion in liquidity due to
supply-side effects.
Comerton-Forde 37 specialists firm from NYSE (and the stocks assigned to them) are The study shows that market makers’ balance sheet and
et al. (2010) examined over the 11-year period 1994–2004. Measures: income statements explain the time-variation in the
Percentage spread, Value weightage effective spread, Revenues liquidity, indicating the important role of supplier-financing
from a roundtrip transaction, revenues from inventory holding. constraints. This individual specialist position also plays an
Method: Time-series OLS regressions. important role in determining marketwide liquidity.
Cao and Wei (2010) 1589 stock options traded on the U.S. stocks for the period of 1996 to The article substantiates the finding that more informed
2004. traders tend to trade in options market. The commonality in
Measure: Volume weighted average proportional bid-ask spread, option market is higher for small and more volatile stocks.
price impact, contract volume, dollar trading volume, Amihud Option market liquidity is linked to the underlying stock
measure. Method: Market model of CRS. market liquidity. Moreover, the option market liquidity
responds asymmetrically to marketwide movements. Lastly,
call and put behave differently to same marketwide
movements.
Corwin and Lipson 100 NYSE stocks are examined over the study period from The relative contribution of institutional traders, retail traders,
(2011) November 1997 to February 1998. Measures: QS, limit spread, 1000- and exchange members is examined in driving
share spread. Method: Principal Component Analysis commonality in order flow, returns, and liquidity.
Programme traders and institutional investors are primary
drivers of commonality in returns, order flows, and liquidity.
(Continued)
 APPLIED ECONOMICS 1739

Table A1: (Continued).

Study Data, variables, and methodology Evidence
Marshall, Nguyen, Sixteen commodities from agricultural, energy, industrial metal, They find a significant presence of systematic liquidity factor
and precious metal, and livestock commodity markets (part of S&P in the commodities market. They find modest evidence to
Visaltanachoti Goldman Sachs Commodity index [S&P GSCI]) are examined over support both the supply- and demand-side factors affecting
(2013) the period of 1997–2009. Measures: Amihud (2002). Method: (a) liquidity commonality. Energy commodities provide the
Market model of CRS.(b) Principal Component Analysis approach. best liquidity risk hedge against the stock market liquidity.
Liquidity commonality is higher following market declines.
Liquidity withdrawals followed by large price declines
provide support to demand-side explanation to liquidity
commonality. Higher commonality associated with fund-
ownership provides support to demand-side explanations.
Kang and Zhang 1000 stocks listed on NYSE are examined for one-year period (2003). The liquidity measures computed for the outside (deeper) and
(2013) Measure examined: Limit-order book dispersion (LD). Cost to trade inside (top) of a limit-order book behave differently.
(CT), Proportional quoted spread. Method: Market model of CRS. Overall, the study provides evidence of commonality in the
liquidity provided by limit-order book. In the market model
regressions, the inside liquidity exhibits an average adj.R2
of 31.64%, and the outside liquidity exhibits an average
adj.R2 of 6.80%
Mancini, Ranaldo, Nine currency pairs (AUD/USD, EUR/CHF, EUR/GBP, EUR/JPY, EUR/USD, The study presents the evidence of commonality in the
and GBP/USD, USD/CAD, USD/CHF, and USD/JPY exchange rates), foreign exchange (FX) market. The study shows that there
Wrampelmeyer obtained from Electronic Broking Services (EBS), are examined over are large co-movements in the liquidity of FX market. The
(2013) the period of 2007–09. Measures: Price impact measure of Kyle evidence suggests that more liquid securities tend to have
(1985), PQSPR; price dispersion measure. Method: Principal lower sensitivities to marketwide FX liquidity. The liquidity
component analysis, in the equity, bond, and FX markets co-moves more
strongly when the markets are illiquid.
Rösch and Kaserer 160 companies listed on the major German market indices (DAX, The study documents that commonality varies over time,
(2013) MDAX, SDAX, TecDAX), traded on Xetra market (German market) increases during market downturn, peaks around crisis
are examined over the study period from 2003 to 2009. Measures: events, and becomes weaker around the deeper levels of
Volume weighted average spread measure. Method: Market model order book. Funding liquidity plays an important role in
of CRS. driving this observed liquidity commonality.
Frino, Mollica, and Nine index futures markets are examined over the 10-year period The study provides significant evidence of the presence of
Zhou (2014) 2002–2012. Measures: QS, RS, and market depth. Method: global liquidity commonality in the index futures market.
Brockman et al. (2002) model is employed. Their evidence suggests that commonality in liquidity has
increased over time.
Koch, Ruenzi, and Stocks listed on NYSE/AMEX over the period of 1980 to 2010 (121,592 Highly correlated trading activity among the stocks, held by
Starks (2016) stock-quarters) are examined. Measures: Amihud (2002). Method: mutual funds, drives commonality and provides the
Market model of CRS. demand-side explanation to the phenomenon of
commonality. The effect of mutual fund ownership is
particularly strong during the outflows.
Moshirian et al. 39 markets over a period of 15 years (1996–2010) are examined. The study shows that liquidity commonality is driven by both
(2017) Measures: RS. Method: Market model of CRS. market-level and firm-level factors. Overall, the evidence
suggests that liquidity commonality is higher in volatile
environments, with poor investor protection, and high
information asymmetry.
Abbreviations
Stock exchanges: New York Stock Exchange (NYSE), American Stock Exchange (AMEX), Deutscher Aktienindex (DAX, Germany), Financial Times Stock
Exchange (FTSE), Stock exchange of Hong-Kong (SEHK), Australian Securities Exchange (ASX).
Measures: Quoted Spread (QS), Proportional Quoted Spread (PQSPR), Depth (DEP), Effective spread (ES), Proportional effective spread (PESPR), Relative bid-ask
spread (RS), Absolute spread (AS), Percentage effective spread (PES), Percentage quoted spread (PQS), Order imbalance (OIB).
Chordia, Roll, Subrahmanyam (CRS, 2000).
1740 A. TRIPATHI ET AL.

Appendix B

Table B1: Quantile regression results [Equation (1)] across the conditional quantiles of liquidity.
Panel A: Volume measure
Quantiles (τ = .05 to 0.50)
Variables 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50
Number of observations 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958
t-stat (Market) 25.53 39.77 52.47 63.60 69.05 72.65 75.50 75.28 75.38 75.44
GoF 3.94% 4.86% 5.61% 6.16% 6.44% 6.61% 6.70% 6.76% 6.83% 6.91%
Quantiles (τ = .55 to 0.95)
Variables 0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95
Number of observations 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958
t-stat (Market) 75.62 75.77 76.48 73.13 69.25 65.89 58.64 41.31 29.79
GoF 7.01% 7.13% 7.26% 7.29% 7.23% 7.01% 6.59% 5.96% 4.95%
Panle B: Amihud measure
Quantiles (τ = .05 to 0.50)
Variables 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50
Number of observations 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958
t-stat (Market) 29.36 41.17 52.80 59.70 67.96 75.38 77.30 79.04 80.56 81.01
GoF 8.97% 10.06% 10.80% 11.38% 11.85% 12.15% 12.38% 12.53% 12.60% 12.56%
Quantiles (τ = .55 to 0.95)
Variables 0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95
Number of observations 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958
t-stat (Market) 81.05 79.35 76.64 74.30 69.79 61.11 53.39 43.03 29.11
GoF 12.66% 12.69% 12.60% 12.40% 12.09% 11.64% 11.02% 10.22% 8.97%
Panle C: CS measure
Quantiles (τ = .05 to 0.50)
Variables 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50
Number of observations 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958
t-stat (Market) 15.64 28.14 34.56 43.31 47.23 47.85 46.02 40.62 35.06 31.70
GoF 2.29% 3.19% 3.82% 4.06% 4.18% 4.08% 3.76% 3.13% 2.10% 1.54%
Quantiles (τ = .55 to 0.95)
Variables 0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95
Number of observations 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958
t-stat (Market) 32.10 35.34 40.06 43.71 46.85 42.91 39.93 30.80 20.07
GoF 1.87% 2.83% 3.46% 3.87% 4.08% 4.13% 3.94% 3.53% 2.87%
Panle D: RHL measure
Quantiles (τ = .05 to 0.50)
Variables 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50
Number of observations 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958
t-stat (Market) 40.42 57.10 69.79 81.93 95.83 105.89 109.34 118.42 123.46 124.11
GoF 8.82% 11.03% 12.70% 13.94% 14.93% 15.74% 16.39% 16.94% 17.33% 17.59%
Quantiles (τ = .55 to 0.95)
Variables 0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95
Number of observations 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958
t-stat (Market) 121.05 118.33 116.21 114.50 104.98 95.31 84.88 67.85 42.22
GoF 17.79% 17.99% 18.05% 17.95% 17.65% 17.19% 16.42% 14.96% 12.03%
Panel E: HLR measure
Quantiles (τ = .05 to 0.50)
Variables 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50
Number of observations 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958
t-stat (Market) 46.08 64.64 74.68 87.42 102.15 112.50 115.67 124.09 129.23 129.30
GoF 11.13% 13.26% 14.84% 15.96% 16.84% 17.62% 18.23% 18.75% 19.13% 19.38%
Quantiles (τ = .55 to 0.95)
Variables 0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95
Number of observations 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958
t-stat (Market) 127.56 125.72 124.72 122.73 112.20 102.17 91.76 71.15 45.88
GoF 19.62% 19.86% 19.99% 19.96% 19.77% 19.40% 18.74% 17.46% 14.85%
Panel F: VOV measure
Quantiles (τ = .05 to 0.50)
(Continued)
 APPLIED ECONOMICS 1741

Table B1: (Continued).

Panel A: Volume measure
Quantiles (τ = .05 to 0.50)
Variables 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50
Number of observations 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958
t-stat (Market) 45.39 65.13 75.32 87.96 102.64 111.34 115.46 125.49 130.02 128.71
GoF 11.20% 13.38% 14.98% 16.08% 16.96% 17.73% 18.34% 18.86% 19.25% 19.51%
Quantiles (τ = .55 to 0.95)
Variables 0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95
Number of observations 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958 49,958
t-stat (Market) 127.94 126.36 125.46 122.34 111.38 103.57 91.67 71.02 48.42
GoF 19.76% 20.00% 20.11% 20.11% 19.94% 19.59% 18.98% 17.75% 15.23%
The table presents the results from the model [Equation (1)] in a quantile regression framework, across the conditional quantiles of liquidity. The time series of
the daily changes in the aggregate (market) liquidity of CCs (contemporaneous, lead, and lag) act as the independent variables. The corresponding values of
the daily changes in the liquidity of individual CCs act as the dependent variable. Panels A-F show the results corresponding to volume, Amihud, CS, RHL, HLR,
and VOV measures. The results show the number of observations, t-statistic for the contemporaneous market liquidity changes, and Goodness-of-fit (GoF)
measure for the regressions.