Workshop Series: Kang Wenjin
We argue and provide evidence that stock price synchronicity affects stock liquidity. Under the "relative synchronicity" hypothesis, higher return co-movement (i.e. higher systematic volatility relative to total volatility) improves liquidity. Under the "absolute synchronicity" hypothesis, stocks with higher beta or systematic volatility are more liquid. Our results support both hypotheses. We find all three liquidity measures (effective proportional bid-ask spread, price impact measure and Amihud's illiquidity measure) are positively related to stock return co-movement and decrease with systematic volatility. Besides market co-movement, larger industry wide component in returns also improves liquidity. We also find that improvement in liquidity following additions to the S&P 500 indexis related to the stock's increase in return co-movement.
Dr. Wenjin Kang is now an Assistant Professor in National University in Singapore. His main research interest is empirical asset pricing, with a focus on the role of liquidity. His research paper has been published in Journal of Finance and other academic journals. He has presented his work in the American Finance Association (AFA) Conference, the Western Finance Association (WFA) Conference, the European Finance Association (EFA) Conference, the NBER Microstructure Conference, the Chinese International Finance Association Conference, the Asian Finance Association Conference, and other conferences and seminars. He has taught classes at both the undergraduate and graduate levels.