Commonality in FX liquidity: High-frequency evidence

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Date

2020-06

Authors

Şensoy, Ahmet
Uzun, Sevcan
Lucey, B. M.

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Abstract

We test the existence and reveal the main properties of commonality in liquidity for the foreign exchange (FX) markets at the high-frequency level. Accordingly, commonality in FX liquidity exists even at the high-frequency level and it has been gradually increasing over the last few years. Moreover, commonality increases significantly before (after) ECB (Fed) monetary policy announcements. Finally, commonality in FX liquidity has a significant positive impact on the commonality in FX return series, indicating that an increase in the intraday systematic liquidity risk might trigger a negative aggregate liquidity-return spiral in the FX markets.

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Finance Research Letters

Publisher

Elsevier

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Language

English

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Article