Abstract
Most studies in the area of spillovers concentrate on return volatility and how this transmits between different markets. Liquidity volatility and potential spillovers on the other hand have attracted very little attention which is disproportional to the importance of liquidity. This empirical study makes an attempt to fill this gap in the literature and investigates liquidity volatility spillovers between the UK and East Asian stock markets (Japan, China, Hong Kong and Korea) and between the UK and the USA from 2006 to 2010. We use GARCH-M models and Granger causality tests. Liquidity is captured by absolute and proportional spread. Liquidity volatility for all countries in the sample is high and persistent. We also confirm the existence of significant liquidity volatility spillover effects using both methods mentioned above for UK-USA, UK-China, UK-Hong Kong and UK-Korea. Results for UK-Japan indicate that there is a weak spillover effect between the two countries if any at all.
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