Abstract

The financial crises, such as the market crash of October 1987, the 1997 East Asian financial crisis and the 1998 long-term capital management (LTCM) crisis, have all shed fresh light on the importance of systematic liquidity (i.e., market-wide liquidity factor). Following the new trend in market microstructure research, this study examines the commonality in liquidity for the Amman Stock Exchange (ASE), one of the emerging markets in the MENA region. Based on data for 247 firms from March 26, 2000 to December 31, 2011, and applying the market model of Chordia et al. (2000), the results provide strong evidence of the presence of market-wide commonality in liquidity. The cross-sectional mean of the estimated coefficient of concurrent market liquidity is statistically significant for all liquidity measures, apart from the price impact measure. Price impact aside, the results show that commonality is pervasive across all size-based portfolios. The results also show an insignificant industry component in individual stocks’ liquidity.

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