Liquidity,liquidity risk,and information flow: Lessons from an emerging market |
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Affiliation: | 1. EDC Paris Business School, OCRE-Lab, Paris, France;2. University of Tunis, High Business Institute of Management, GEF-2A Laboratory, Tunis, Tunisia;3. Faculty of Management and Economic Sciences of Tunis, El Manar University, The International Finance Group, Tunisia;1. Higher Institute of Management of Sousse, Department of Finance, Tunisia;2. Higher Institute of Management of Tunis, Department of Finance, Tunisia;1. University of Pittsburgh, 4901 Wesley W. Posvar Hall, Pittsburgh, PA 15260, United States;2. SUNY Buffalo State, Bishop Hall 301, Buffalo, NY 14222, United States;1. University of Maryland, College Park, United States;2. Connecticut College, New London, United States |
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Abstract: | This paper examines the role of public and private information flows in intraday liquidity and intraday liquidity risk in the Tunisian stock market. Our empirical results are based on ARMA and GARCH-type models and show that, for major Tunisian stocks, gradually elapsed public information together with gradually elapsed private information in the market is the dominant factor in liquidity improvements in the Tunisian stock market. Liquidity improvements are generated by a decrease in the bid-ask spread accompanied by an increase in the depth at best limit. Our results clearly indicate that the arrival of public information in a sequential manner is the dominant factor generating increases in liquidity risk related to the bid-ask spread, while the advent of private information in a contemporaneous manner is the dominant factor generating increases in liquidity risk related to the depth at best limit. Additionally, our results show that liquidity risk persistence disappears when trading volume and order imbalance are included as explanatory variables in the conditional variance equation. |
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Keywords: | Information flow GARCH models Trading volume Order imbalance Liquidity risk Liquidity |
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