Liquidity and volatility commonality in the Canadian stock market.

This paper studies liquidity and volatility commonality in the Canadian stock market. We show that five various liquidity measures display strong evidence of commonality at both market-wide and industry specific levels. Our findings extend the results of previous studies in liquidity commonality, and show that even after controlling for individual determinants of liquidity such as price, volume, and volatility, liquidity commonality remains. In addition to demonstrating liquidity commonality, we also investigated the causal relationship between liquidity and volatility. Our evidence indicates that depth, proportional effective spread, and liquidity changes predict volatility changes for bid-ask spread, depth, and proportional effective spread.