Commonality in liquidity, liquidity distribution, and financial crisis: Evidence from country ETFs

• This paper explores commonality in liquidity for country ETFs.
• The results present the strong commonality in liquidity among country ETFs.
• The extent of commonality in liquidity varies with the liquidity distribution.
• The extent of liquidity commonality is stronger in times of financial crisis.
• Supply- and demand-side affecting commonality vary with liquidity distributions.

This paper explores commonality in liquidity for country ETFs. Using data from 21 country ETFs, the empirical results present the strong commonality in liquidity among country ETFs. Furthermore, the paper shows that the magnitude of commonality in liquidity for country ETFs varies with the liquidity distribution. The empirical results also indicate that the extent of liquidity commonality for country ETFs is stronger in times of financial crisis than in non-crisis periods. Finally, the paper also finds that the impacts of supply- and demand-side effects on commonality in liquidity for country ETFs vary with liquidity distributions, and the results are consistent with the funding-liquidity mechanism and investor sentiment hypotheses.