A reexamination of the relationship between volatility, liquidity and trading activity

Khine Kyaw; David Hillier

doi:10.18002/pec.v0i2011.751

Autores/as

Khine Kyaw University of Plymouth
David Hillier University of Strathclyde

DOI:

https://doi.org/10.18002/pec.v0i2011.751

Palabras clave:

Liquidez, Volatilidad, Actividad negociadora, Tamaño de la empresa, Negociación, Liquidity, Volatility, Trading activity, Firm size, Strategic trading, LSE

Resumen

Este trabajo investiga si la relación entre actividad negociadora en el mercado de acciones, la liquidez del mercado y la volatilidad a nivel de cartera, es similar a dicha relación a nivel deacciones individuales. Para las carteras de empresas de mayor tamaño, la mayor actividad negociadora está relacionada con mayor liquidez y más volatilidad. Sin embargo, a pesar de quela relación volatilidad-liquidez es la misma para las carteras de acciones pequeñas, encontramos que la mayor actividad negociadora está negativamente asociada con la liquidez para estaagrupación. Este contraste en las relaciones está causado por las interrelaciones dinámicas entre las tres variables y una vez que se controla por esas interrelaciones, dicho contraste en losresultados desparece. Estos hallazgos contribuyen al debate sobre el comportamiento del mercado, que ha adquirido un renovado interés en los últimos años.

We investigate whether the relationship between equity trading activity, market liquidity and return volatility at the portfolio level is similar to the relationship at the individual security level. For the very largest firm-size portfolio, higher trading activity is positively associated with greater liquidity and more volatile returns. However, despite the volatility-liquidity relationship being the same for smaller equity portfolios, we find that higher trading activity is negatively associated with liquidity for this grouping. These contrasting relationships are shown to be caused by the interdynamics between all three variables and once we control for these interrelationships, the contrasting results disappear. The findings contribute to the debate on market behaviour that has taken on renewed vigour in recent years.

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