How Do Shocks Arise and Spread Across Stock Markets? A Microstructure Perspective:  A microstructure perspective

Dion Bongaerts; Richard Roll; Dominik Rösch; Mathijs van Dijk; Darya Yuferova

doi:10.1287/mnsc.2021.3979

How Do Shocks Arise and Spread Across Stock Markets? A Microstructure Perspective: A microstructure perspective

Dion Bongaerts, Richard Roll, Dominik Rösch, Mathijs van Dijk, Darya Yuferova

Department of Finance

Research output: Contribution to journal › Article › Academic › peer-review

1 Citation (Scopus)

Abstract

We study intraday, market-wide shocks to stock prices, market liquidity, and trading activity on international stock markets and assess the relevance of recent theories on “liquidity dry-ups” in explaining such shocks. Market-wide price shocks are prevalent and large, with rapid spillovers across markets. However, price shocks are predominantly driven by information; they do not revert and are often associated with macroeconomic news. Furthermore, liquidity shocks are typically isolated and transitory. Overall, we find little evidence for liquidity effects fomenting price shocks or non-fundamental contagion, nor for alternative explanations. Market-wide liquidity dry-ups are thus of little concern to international investors.

Original language	English
Pages (from-to)	3071-3089
Number of pages	19
Journal	Management Science
Volume	68
Issue number	4
DOIs	https://doi.org/10.1287/mnsc.2021.3979
Publication status	Published - Apr 2022

Bibliographical note

Funding Information:
This work was supported by Nederlandse Organisatie voor Wetenschappelijk Onderzoek [Vidi Grant 452-08-012]. M. van Dijk gratefully acknowledges financial support from the Vereniging Trustfonds Erasmus Universiteit Rotterdam. This work was carried out on the national e-infrastructure with the support of SURF Foundation.

Funding Information:
History: Accepted by Karl Diether, finance. Funding: This work was supported by Nederlandse Organisatie voor Wetenschappelijk Onderzoek [Vidi Grant 452-08-012]. M. van Dijk gratefully acknowledges financial support from the Vereniging Trustfonds Erasmus Universiteit Rotterdam. This work was carried out on the national e-infrastruc-ture with the support of SURF Foundation. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2021.3979.

Publisher Copyright:
Copyright: © 2021 INFORMS

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Cite this

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title = "How Do Shocks Arise and Spread Across Stock Markets? A Microstructure Perspective: A microstructure perspective",

abstract = "We study intraday, market-wide shocks to stock prices, market liquidity, and trading activity on international stock markets and assess the relevance of recent theories on “liquidity dry-ups” in explaining such shocks. Market-wide price shocks are prevalent and large, with rapid spillovers across markets. However, price shocks are predominantly driven by information; they do not revert and are often associated with macroeconomic news. Furthermore, liquidity shocks are typically isolated and transitory. Overall, we find little evidence for liquidity effects fomenting price shocks or non-fundamental contagion, nor for alternative explanations. Market-wide liquidity dry-ups are thus of little concern to international investors.",

author = "Dion Bongaerts and Richard Roll and Dominik R{\"o}sch and {van Dijk}, Mathijs and Darya Yuferova",

note = "Funding Information: This work was supported by Nederlandse Organisatie voor Wetenschappelijk Onderzoek [Vidi Grant 452-08-012]. M. van Dijk gratefully acknowledges financial support from the Vereniging Trustfonds Erasmus Universiteit Rotterdam. This work was carried out on the national e-infrastructure with the support of SURF Foundation. Funding Information: History: Accepted by Karl Diether, finance. Funding: This work was supported by Nederlandse Organisatie voor Wetenschappelijk Onderzoek [Vidi Grant 452-08-012]. M. van Dijk gratefully acknowledges financial support from the Vereniging Trustfonds Erasmus Universiteit Rotterdam. This work was carried out on the national e-infrastruc-ture with the support of SURF Foundation. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2021.3979. Publisher Copyright: Copyright: {\textcopyright} 2021 INFORMS",

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How Do Shocks Arise and Spread Across Stock Markets? A Microstructure Perspective: A microstructure perspective

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