Article ID Journal Published Year Pages File Type
973591 Pacific-Basin Finance Journal 2014 27 Pages PDF
Abstract

•Liquidity commonality is positively related to institutional ownership in Taiwan.•The positive relation is more pronounced during market declines.•Securities dealer ownership is the dominant driver of liquidity commonality.•Ownership by QFII or dealer has stronger impacts on commonality in large stocks.•Ownership by mutual fund has a stronger effect on commonality in small stocks.

In a sample of the Taiwan Stock Exchange (TWSE), this paper documents that stocks with greater liquidity commonality are related to higher aggregate ownership by qualified foreign institutional investors (QFIIs), mutual funds, and securities dealers. This positive ownership–commonality relation is more pronounced during market declines. Decomposing data for each of the three institutions reveals that ownership by securities dealers overshadows ownership by QFIIs or mutual funds in driving liquidity commonality on the TWSE. Moreover, the positive relation between commonality and ownership by QFIIs or securities dealers is stronger for large-cap stocks, whereas the positive effect of mutual fund ownership on commonality is more evident among small-cap stocks. These findings endorse the size effect, habitat-based explanations, and style-based explanations of liquidity commonality. Overall, this study bolsters demand-side explanations of commonality on the TWSE by finding that correlated trading among institutions generates co-movement in liquidity.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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