Emerging Market Liquidity Dynamics and Information Content of Time between Trades

Existing studies of liquidity dynamics that use the framework developed by Hasbrouck (1991a) typically focus on mature capital markets in developed countries. There has been little empirical work on liquidity dynamics in emerging markets. Emerging markets are characterized by some important and interesting features, such as severe barriers to capital investment, large cross-sectional variations, rapid development, and high stock market volatility, that are not typical in developed economies.This project aims to provide a comprehensive study of liquidity dynamics in emerging markets. The sample covers about 2,200 stocks from 24 emerging markets included in Standard and Poor’s (S&P) Emerging Market Database (EMDB). The researchers obtain tick-by-tick data on these 2,200 individual stocks over an average period of 180 trading days.Specifically, the research team will measure the information content of time between trades for emerging markets, compare these results with those from developed markets, and relate them to the special features of emerging markets. In particular, the researchers will explore the role of time duration between consecutive transactions and link this information to the degree of openness as measured by the investible weight factor, direct foreign ownership of the underlying stocks, and indirect foreign investment accessibility in the form of depository receipts.