Abstract
Following the liquidity dry-ups witnessed during the 2007-09 financial crisis, many studies highlighted the relation between market downturns and increased co-movements in liquidity. This study examines whether the mid-2007 implementation of Regulation National Market System (Reg NMS) played a contributing role in driving equity liquidity co-movements, and whether its impact has been confounded with that of the recent crisis. Results from a dynamic factor model approach confirm the recent crisis's impact on increasing co-movements within bid-ask spreads, and additionally demonstrate that Reg NMS contributed to structural changes in commonality within dollar volumes even prior to the crisis.
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