Date of Degree

2-2022

Document Type

Dissertation

Degree Name

Ph.D.

Program

Economics

Advisor

Wim Vijverberg

Committee Members

Chu-Ping Vijverberg

Christos Giannikos

Subject Categories

Data Science | Econometrics | Finance | Longitudinal Data Analysis and Time Series

Keywords

commonality in liquidity, market microstructure, factor models, principal components, passive investing, exchange traded funds

Abstract

Market microstructure research has recently devoted attention to a phenomenon called commonality in liquidity. In this dissertation, I will analyze commonality in liquidity using a novel factor model approach and a generalized definition of commonality in liquidity. This analysis will show that commonality in liquidity is rarely a marketwide phenomenon and is mostly restricted to stocks with a large market capitalization. Additionally, commonality in liquidity is a very recent phenomenon whose appearance coincides with a rise in passive investing after the Dotcom Bubble burst and, more so, after the 2008 Financial Crisis. I will present evidence that suggests commonality in liquidity is a function of passive investing strategies and not dependent on the rise in use of certain investment vehicles such as exchange traded funds (ETFs).

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