Is Commonality in Liquidity A Priced Risk Factor?: Cláudio P. Silva Júnior

ISSN 1678-6971 (electronic version) • RAM, São Paulo, 21(2), eRAMF200158, 2020
Strategic Finance, doi:10.1590/1678-6971/eRAMF200158
IS COMMONALITY IN LIQUIDITY A
PRICED RISK FACTOR?
CLÁUDIO P. SILVA JÚNIOR1

https://orcid.org/0000-0002-3665-7077
MÁRCIO A. V. MACHADO1
https://orcid.org/0000-0003-2635-5240
To cite this paper: Silva Júnior, C. P., & Machado, M. A. V. (2020). Is commonality in liquidity a
priced risk factor? Revista de Administração Mackenzie, 21(2), 1–27. doi:10.1590/1678-6971/
eRAMF200158
Submission: Oct. 19, 2018. Acceptance: Aug. 9, 2019.
1
Universidade Federal da Paraíba (UFPB), João Pessoa, PB, Brazil.
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Cláudio P. Silva Júnior, Márcio A. V. Machado
ABSTRACT
Purpose: Analyze if the commonality in liquidity is priced and its relation

with the stock return in the Brazilian stock market.
Originality/value: Due to the shortage of papers about the effects of
commonality in liquidity in the Brazilian financial literature, this paper
provides knowledge development about commonality in liquidity effect
for the investor, investigating whether an investment strategy in the
most sensitive assets to systematic variations of liquidity is attractive for
investors, consistent with the risk-return trade off.
Design/methodology/approach: In order to identify the effect of com-
monality to investors, we opted to use portfolios. Using companies listed
on B3 as a sample, we estimated regressions developed in the time series
from January 2007 to December 2015.
Findings: We found that the commonality is a phenomenon present in
the Brazilian stock market and their highest values were concentrated
in periods of international financial crises. In addition, using portfolios,
we observed a premium of 4.165% per month for the commonality in
liquidity, although not statistically significant. Finally, we found that the
commonality in liquidity is a priced risk factor and when we exposed it
to other risk factors we found that the liquidity risk factor was able to
partly capture it.
KEYWORDS
Commonality. Investment. Liquidity. Risk. Return.
doi:10.1590/1678-6971/eRAMF200158
Is commonality in liquidity a priced risk factor?
1. INTRODUCTION
One of the main changes in global financial markets over the past 20
years has been the growth in the aggregate stock market trading volume
(Foran, Hutchinson, & O’Sullivan, 2015). As a consequence, with the many
market crises and because of several cases of shortage of liquidity they bring
about (Mayordomo, Rodriguez-Moreno, & Peña, 2014), the role of liquidity
has gained attention (Sadka, 2011).
The financial literature on liquidity currently considers the following
possible relations across four different variables: firm return, Ri, firm liquidity,
Li, market return, Rm, and market liquidity, Lm (Sadka, 2011). On a covariance
matrix reflecting the interaction of such four variables, Sadka (2011) demon-
strates the possible fields of liquidity studies: the study of liquidity volatility,
the study of stock liquidity risk pricing, cov ( Ri , Lm ) ; and systematic
liquidity variations, cov ( Li , Lm ) .
The extent to which liquidity shows systematic variations, cov ( Li , Lm ) ,
which is the object of this study, was primarily documented by Chordia, Roll
and Subrahmanyam (2000); up to the early 2000s there were no theoretical
or empirical works that analyzed the covariance between systematic liquidity
and stock liquidity (Brockman & Chung, 2002).
Chordia et al. (2000) were the precursors of this line of research and
demonstrated that liquidity, transaction costs and other individual charac-
teristics of stocks had common determinants, and named them commonality
in liquidity. In their definition, Chordia et al. (2000) characterized com-
monality in liquidity as the covariation between individual stock liquidity
and market and industry liquidity, thus, resulting in commonality in liquidity
risk, that is, variations in stock liquidity are determined also by systematic
factors.
Therefore, commonality in liquidity may represent a non-diversifiable
priced risk source, which may affect asset prices if investors demand a higher
expected return of stocks with higher sensitivities to market liquidity shocks
(Chordia et al., 2000).
More intuitively, just like the correlation among stocks is important for
the variance of a portfolio, commonality in liquidity becomes important for the
expected transaction cost, considering that stocks that are more likely to
become illiquid during market declines will have higher transaction costs
(Anderson, Binner, Hagströmer, & Nilsson, 2016).
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Based on this, investors must be more attentive to the variance in liquidity

due to systematic factors, considering that it is a non-diversifiable risk source
and cases of reduced market liquidity occur when investors need urgent
liquidity (Qian, Tam, & Zhang, 2014). Then, investors must demand a higher
return rate to purchase stocks whose liquidity is more sensitive to systematic
liquidity.
A substantial literature has documented the existence of commonality
in liquidity (Hasbrouck & Seppi, 2001; Huberman & Halka, 2001; Coughenour
& Saad, 2004; Victor, Perlin, & Mastella, 2013; Silveira, Vieira, & Costa, 2014;
Bai & Qin, 2015; Narayan, Zhang, & Zheng, 2015; Tayeh, Bino, Ghunmi, &
Tayem, 2015). However, as pointed out by Anderson et al. (2016), the num-
ber of studies that analyzed the implications of commonality in liquidity is
surprisingly small.
The studies conducted in Brazil documented the existence of commonality
in liquidity in specifically selected periods of time (Victor et al., 2013;
Silveira et al., 2014; Bai & Qin, 2015). However, these studies did not seek
to identify the implications of commonality for investors, a theme which is
scarce both nationally and internationally. In addition, the Brazilian stock
market has favorable conditions for the existence of high commonality, due
to the low liquidity and high volatility of the market.
Therefore, an important question for the study of commonality in the
Brazilian stock market is whether investors are compensated for dealing with
commonality in the portfolios management. As suggested by Chordia et al.
(2000), investors must be compensated for holding assets that are more
sensitive to market liquidity variations.
The empirical evidence in the international studies by Acharya and
Pedersen (2005), Lee (2011) and Hagströmer, Hansson, and Nilsson (2013)
indicated that the risk premium for commonality in the US market is nearly
zero. However, Anderson et al. (2016) demonstrated a significant positive
premium for commonality in liquidity in the US market after controlling for
liquidity.
Because of such differences between theoretical and empirical evidence
about commonality in liquidity, and due to characteristics of emerging mar-
kets and to the existence of commonality in liquidity risk, which may affect
firms, regulators and, mainly, investors, this paper introduces the following
research problem:
• Is commonality in liquidity a priced risk factor in the Brazilian stock

market?
4
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In Brazil, the studies about commonality in liquidity are recent (Victor

et al., 2013; Silveira et al., 2014; Bai & Qin, 2015). At first, this study aimed
to document – by using the measure of Amihud (2002) as a proxy for
liquidity – the existence of commonality in liquidity in the Brazilian stock
market. Then, we sought to verify the monthly risk premium value for
commonality in liquidity and, lastly, whether commonality is a priced risk
factor and how exposed it is to the other risk factors.
In Brazilian studies (Victor et al., 2013; Silveira et al., 2014), the samples
were only the stocks on the Bovespa index, that is, the most traded shares
in the stock market. Our study used all the stocks traded on Bolsa, Brasil e
Balcão – B3, selected on a few criteria (presented in section 3.1), leading to
a study about the importance of commonality for the stock market in general.
In addition, if commonality in liquidity constitutes a non-diversifiable
priced risk source, it is expected that the more sensitive an asset is to market
shocks, the greater must be its expected return (Chordia et al., 2000; Anderson
et al., 2016; Foran et al., 2015; Tayeh et al., 2015). In this sense, its implica-
tions are an important factor for many market participants, because under-
standing the consequences of liquidity covariation will help investors bear
this risk more efficiently (Coughenour & Saad, 2004).
Then, due to the low liquidity of the Brazilian stock market, we expect
to find high commonality for the traded stocks, because commonality is the
risk that a security becomes more illiquid when the market in general
becomes more illiquid (Anderson et al., 2016). Besides, when analyzing its
temporal aspect, we may observe whether this phenomenon is durable and
also observe the implications of commonality for investors (demanding
greater return for more sensitive assets), regulators (market crisis risk due
to systematic variations in liquidity) and firms, since commonality negatively
influences the value invested by firms (Qian et al., 2014).
Therefore, using the approach used by Qian et al. (2014) and Anderson
et al. (2016), this study intends to complement and feed the national
literature on commonality in liquidity, by investigating whether commonality
in liquidity is priced, and by investigating its relations with stock returns in
the Brazilian stock market.
2. COMMONALITY IN LIQUIDITY: THEORETICAL

BACKGROUND AND ITS IMPLICATIONS
The main focus of the literature on market microstructure has been to
study assets individually (Chordia et al., 2000). In this sense, the micro-
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structure models, based on inventory risk2, argue that the negotiation pro-
cess is a matter of combining buy and sell orders, to be organized by market
makers, who have a prominent position in market microstructure models
(O’Hara, 1995). In addition, although the traditional paradigms do not pic-
ture the systematic effect of liquidity, it is possible to notice the effects of
inventory risk and asymmetric information on commonality in liquidity
Although the studies in financial literature discuss liquidity risk in mar-
kets, this line of research has little connection with the risk of commonality
in liquidity. While the investigation of co-movements of systematic liquidity
and individual asset returns is named liquidity risk, cov ( Ri , Lm ) , com
monality in liquidity risk is defined as co-movements of systematic liquidity
and individual asset liquidity, cov ( Li , Lm ) (Anderson et al., 2016).
The funding constraint model of Brunnermeier and Pedersen (2009)
explains the different situations regarding market liquidity, such as its
sudden reduction, the commonality of stocks, its relation with volatility
and, lastly, flight to liquidity. In turn, the liquidity-adjusted capital asset
pricing model (LCAPM) of Acharya and Pedersen (2005) demonstrates
theoretically that the risk of commonality influences the expected return.
Although a systematic liquidity component is consistent with the
financial theory in terms of implications, up to the early 21st century, few
studies presented empirical evidence of commonality in liquidity (Chordia
et al., 2000; Brockman & Chung, 2002).
Chordia et al. (2000), Huberman and Halka (2001), and Hasbrouck and
Seppi (2001) were the first to present evidence of commonality in liquidity
in the US market. The pioneer study of Chordia et al. (2000) identified
significant liquidity co-movements in the US market, indicating that the
stock liquidity variation is determined by firm-specific systematic factors.
According to analyzed studies, such liquidity systematic variation is of
great importance for investors, because, being one among other evidences,
it implies a non-diversifiable risk source (Chordia et al., 2000; Brockman &
Chung, 2002; Narayan et al., 2015), it has an impact on the smooth working
of the market (Syamala, Reddy, & Goyal, 2014), it has time variations
(Pukthuanthong-Le & Visaltanachoti, 2009; Victor et al., 2013), and a
seasonal effect (Kempf & Maston, 2008).
2
Inventory risk is the cost that market makers have to deal with while their positions are open, that is,
when they buy more than they sell or vice-versa.
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In the financial literature, there are few studies about commonality in

liquidity covering the Brazilian stock market (Victor et al., 2013; Silveira
et al., 2014; Bai & Qin, 2015). Victor et al. (2013) analyzed data of 30 stocks
traded on B3, between 2010 and 2012, and argued that commonality in
liquidity is not constant and goes through variations throughout the day on
which they are caused, mainly, by the impact of information. Then, by trying
to adjust the position due to new information, investors go into trading,
which, in turn, raises the individual stocks trading volume in the same
period of time (Victor et al., 2013). These results were ratified by Silveira
et al. (2014), who also found the existence of market liquidity co-movements
in the Brazilian stock market.
There are different practical implications of commonality for traders,
investors and regulators. One question is whether shocks in trading costs
constitute a source of non-diversifiable priced risk (Chordia et al., 2000) or
whether they may constitute a risk, because if liquidity shocks cannot be
diversified, the sensitivity of an individual asset to such shocks could induce
the market to demand a higher average return.
In this sense, common factors in liquidity seem to suggest that liquidity
shocks are applied systematically to all investors and are transmitted across
investors and/or stocks, causing broad market effects (Fernando, 2003).
Then, a higher expected return would certainly be necessary for stocks with
higher trading costs; however, such higher expected return could be an
increment demanded from stocks with higher sensitivities to broad liquidity
shocks.
Another important question both for participants and market regulators
is whether changes in liquidity provision affect commonality and its relation
with excess of returns (Galariotis & Giouvris, 2009). Then, liquidity covaria-
tion may have implications for the market such as a demand for additional
expected returns of stocks with higher sensitivities to broad liquidity shocks
For regulators and banks, understanding the effects of commonality is
highly important, because such liquidity shocks may cause broad market
effects that may impact its smooth working, leading to financial crises or
stock market crashes (Syamala et al., 2014).
This way, commonality in liquidity is associated with market imperfec-
tions, where stocks with higher commonality in liquidity are more illiquid
than other stocks, when the market in general becomes illiquid. In this
sense, if the external funding of firms with higher commonality is more
costly or more sensitive to market conditions than that of other firms, then
7
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these firms should invest less to reduce the adverse selection cost and/or
preserve financial slacks for bad economic states (Qian et al., 2014).
Finally, the variability of commonality in liquidity may also influence
policy-making. Having found that, in the Brazilian stock market, commonality
in liquidity is higher at the beginning and at the end of the day, the creation
of more aggressive circuit-breaker rules in such periods may minimize a
chain reaction for systematic liquidity (Victor et al., 2013).
2.1 Research hypothesis
As per the content of item 2, our research hypothesis is associated with

the implications of commonality in liquidity for investors. Knowing that the
difference in market structures leads to broad differences in the characteris-
tics of asset liquidity, this investigation and the supply of evidence about
systematic liquidity pricing in the Brazilian stock market will be able to
evaluate whether the differences of market structures and those of the charac-
teristics of asset liquidity affect the findings and conclusions about the rela-
tion between systematic liquidity and stock returns, which have been docu-
mented mainly in the US market (Anderson et al., 2016; Foran et al., 2015).
Thus, this study presents information about the relation between
commonality in liquidity and asset pricing. Note that liquidity may be priced
as a characteristic or as a systematic risk factor (Foran et al., 2015). Therefore,
by noting commonality in the Brazilian stock market, it is expected that
stocks that are more sensitive to market liquidity variations offer a higher
expected return as a compensation for their risk and also induce investors to
hold such assets (Chordia et al., 2000; Anderson et al., 2016; Foran et al.,
2015; Tayeh et al., 2015). In this sense, we come to the following research
hypothesis:
• H1: Commonality is priced and has a positive relation with returns in

3. METHODOLOGICAL PROCEDURES
3.1 Sample
The sample of this study was composed of firms with stocks listed
on B3, from January 2007 to December 2015. This time frame was chosen
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for comprising different moments in the stock market, such as financial

crises, which may directly influence market liquidity (Chordia, Sarkar, &
Subrahmanyam, 2005).
The data of this research were collected from the Thomson Reuters®
database and also from the B3 and the Securities and Exchange Commission
(Comissão de Valores Mobiliários – CVM). In addition, to form the sample,
three criteria had to be respected: 1. we used the most liquid stock of each
firm, based on the negotiability index; 2. we selected stocks that were traded
at least for 15 days in every month of the years analyzed; and 3. we selected
the stocks whose trading price was over BRL 1.00, since low-value stocks
tend to experience more return oscillations (Chordia et al., 2000). Moreover,
B3 no longer allows trading stocks under BRL 1.00, because they are more
volatile and easier to manipulate.
3.2 Econometric model
3.2.1 Measuring commonality in liquidity
To analyze commonality in the Brazilian stock market, we used the

model proposed by Qian et al. (2014), in which the commonality in liquidity
2
measure is obtained by R , through a two-stage estimation method. First,
we obtained the liquidity innovation measures, through the residuals from
an autoregressive model for each stock (i), using daily observations of
liquidity within each year t, as in Equation 1.
Liqi , id, d−−1,1,t t ++∑

∑ww==11αα22i ,id,d,t,tDDww ++α α 33Fer
44
Liq α
α
Liqi ,id,d,t,t =
= 00 ++αα11Liq i ,id,d,t,t ++
Fer
Hol +uui ,uid,d, i,d,t
t, t (1)
i,d,t
in which Liqi ,d ,t and Liqi ,d −1,t are the illiquidity measure of Amihud (2002) on
days d and d-1 of year t, respectively. The measure of Amihud (2002) was
 reti ,d ,t 
− ln  1 +
obtained by Liqi ,d ,t =  , in which reti ,d ,t is the absolute daily
 voli ,d ,t 

return for stock i, on day d of year t, and voli,d,t is the daily financial volume for
stock i, on day d of year t. The variable Dw is a dummy for the days of the
week, from Monday through Thursday, and Holi,d,t is a dummy variable for
the holidays; these two latter variables were included to eliminate seasonal
variation in liquidity (Chordia et al., 2005; Qian et al., 2014).
From the residual results of Equation 1, we obtained the commonality in
2
liquidity measure, R , through the regression model, as shown in Equation 2:
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β 0 i ,t + β1i ,t uˆm ,d ,t + β 2 i ,t uˆm ,d +1,t + β 3i ,t uˆm ,d −1,t + ei ,d ,t (2)

uî ,d ,t =
in which uˆm ,d ,t , uˆm ,d +1,t and uˆm ,d −1,t are market liquidity innovation measures
value-weighted on December 31 of the previous year of uî ,d ,t , uî ,d +1,t , uî ,d −1,t
(obtained from Equation 1) over days d, d+1 and d-1 in year t, respectively.
Then, for each month, with the daily liquidity innovation of the market
and of individual stocks, we obtained the value of monthly commonality for
each of the stocks of the analyzed sample, through the R2 obtained from
Equation 2. In addition, market commonality in liquidity was obtained by
the individual commonalities’ average.
At last, because R2 ranges from zero to one, we used the logarithmic
transformation in the measure of R2, to use such value in the time-series
regressions, as in Equation 3.
 R2 
Commonalityi ,m , t = ln  i ,m , t
 (3)
 (
 1 − Ri2,m , t ) 

in which Commonalityi,m,t is the individual commonality in liquidity of stock i

in month m of year t, after the logarithmic transformation to be used in the
time-series regressions.
3.2.2 Analyzing the risk of commonality in portfolios
Commonality in liquidity constitutes a source of non-diversifiable risk

(Chordia et al., 2000). In this sense, if priced, investors will demand a higher
return for dealing with assets that have greater commonality in liquidity.
For this reason, we created portfolios based on illiquidity, calculated by
the measure of Amihud (2002), and on commonality, calculated by the com-
monality measure (R2) obtained from Equation 3, as suggested by Anderson
et al. (2016). The analysis of commonality in portfolios may make changes
in liquidity co-movements more evident, because the use of portfolios may
eliminate great part of the firm-specific variation (Chordia et al., 2000).
Then, in June of each year, stocks were primarily ordered by their degree
of illiquidity and, by using their median value, stocks were divided into two
groups: low and high, that is, groups of stocks with low and high liquidity,
respectively. Still in this very month, stocks were ordered by their degree
of commonality risk and distributed in quintiles: the first quintile corresponded
to the stocks with the lowest commonality, whereas the last quintile repre-
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sented the stocks with the highest commonality. In the same month, after
the two previous orderings, ten portfolios were constructed, formed by
the intersection of the two liquidity groups and the five commonalities in
liquidity groups.
Then, for each month, we calculated the return of each stock, through
its natural logarithm. To calculate the monthly return of each of the ten
portfolios, we weighted the stock’s market value on the portfolio’s market
value, the returns of the stocks that compose the portfolios. This way, we
obtained a premium for investors to deal with the risk of commonality in
liquidity, by the difference between the average monthly returns of the
groups with the highest and lowest commonality.
In addition, to verify whether commonality in liquidity constitutes a
priced risk factor in the Brazilian stock market, we used the two-stage
regression process – cross-sectional and time series – of Fama and Macbeth
(1973); in the first stage, the returns of the ten portfolios constructed on
liquidity and commonality were regressed on market, size, B/M, momentum,
liquidity and commonality as risk factors, through time-series regression, to
obtain the beta coefficients of the explanatory factors, as in Equation 4.
( R ) − R
i , t = i + β i , mkt ( Rm ,t ) − R f ,t  + β i , SMB
α f ,t ( SMBt ) + β i , HML ( HMLt ) +
(4)
β i , MOM ( MOMt ) + β i , LIQ ( LIQt ) + β i , COM ( PComt ) + ε i , t
in which Ri ,t ( ) is the monthly return of the portfolios constructed on com-

monality and liquidity; Rf is the risk-free rate; ( Rm ) − R f , is the market risk
premium in month t; SMB is the size risk premium in month t; HML is the
book-to-market risk premium in month t; MOM is the momentum risk pre-
mium in month t, LIQ is the liquidity risk premium in month t, PCom is the
commonality in liquidity risk premium in month t.
In the second phase, a single cross-sectional regression was estimated
for the average excess returns on the betas estimated in Equation 4. This
way, the verification of the validity of the risk factors will be estimated
through Equation 5:
( R ) − R
i f = λ0 + λ1 βî , mkt + λ2 βî , smb + λ3 βî , hml + λ4 βî ,mom + λ5 βî ,liq + λ6 βî , pcom + ε i (5)
in which ( Ri ) − R f is the average excess return in the analyzed period, β are
the parameters estimated in the first phase and λ1 , λ2 , λ3 , λ4 , λ5 , λ6 are the
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coefficients of the following risk factors: market, size, BM, momentum,

liquidity and commonality, respectively. Then, on the estimation of the
second phase, if the coefficient λ6 is significant and positive, this suggests
that commonality in liquidity constitutes a priced risk factor.
Note that, for the cross-sectional regression estimation, the standard
errors of the risk factor must be corrected, considering that the independent
variables in Equation 5 are regressors estimated in Equation 4. In this sense,
we used the correction of Shanken (1992), which corrects the underesti-
mated standard error as in Fama and Macbeth’s (1973). Thus, the standard
( )
−1
errors will be corrected by the factor 1 + λˆ' Σˆ −1λˆ ,, in which Σ ˆ is the
f f
covariance matrix of market, size, B/M, momentum, liquidity and common-

ality factors, and λˆ, is the estimated parameters matrix.
Finally, as in Anderson et al. (2016) and Fama and French (2015), the
premium for commonality in liquidity was regressed on the other risk
factors, commonly documented in the financial literature: market, size,
book-to-market, momentum and liquidity. This analysis was conducted
with the purpose of verifying the exposition of commonality premium to the
other risk factors, that is, if commonality is absorbed by such factors.  In this
sense, commonality was checked for redundancy, that is, if commonality is
present in the other risk factors. To this end, we analyzed the significance of
the intercept of the regression models and the risk factor coefficients of each
model. On this analysis, if the intercept is not significant and one of the risk
factor coefficients is significant, this indicates that the average return for
commonality is captured by the exposition of commonality to the other risk
factors.
Then, the monthly premiums of the high-low strategy for commonality
in liquidity were regressed on the risk factors, with an annual adjustment of
the portfolios, as in Equation 6.
α ( SMB) + hi ( HML ) + mi ( Mom ) +

+ β i Market  + si
P _ Com = li ( LIQ ) + ε i (6)
in which P_ Com is the monthly premium of the high-low strategy for com-
monality in liquidity; Market is the market risk premium; SMB is the size
risk premium; HML is the book-to-market risk premium; Mom is
the momentum risk premium and LIQ is the liquidity risk premium. Risk
factors were obtained according to the methodology presented by Machado
and Medeiros (2011).
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4. RESULTS
4.1 Descriptive analysis of the sample
Upon the application of exclusion criteria, data from 1,315 stocks were
collected, which, on average, meant 146 stocks (39.22% of the population)
per year (Figure 4.1.1). When compared with the sample of international
studies, this is a reduced number of analyzed stocks, which is one of the
problems with the Brazilian stock market, due to the small number of listed
firms (Machado & Medeiros, 2011).
Figure 4.1.1 shows that, over the years, there has been a reduction in
the number of firms listed on B3, possibly due to the low price of stocks and
the high cost to remain listed. However, we believe that the sample has a
satisfactory size compared to the studies of Victor et al. (2013), who analyzed
the data of 30 stocks, and Silveira et al. (2014), who analyzed the data of 69
stocks traded on B3.
Figure 4.1.1
POPULATION AND SAMPLE
Year Population Sample % of population
2007 404 89 22.03
2008 393 129 32.82
2009 385 123 31.95
2010 381 147 38.58
2011 373 157 42.09
2012 364 162 44.50
2013 363 168 46.28
2014 363 171 47.11
2015 359 169 47.07
Average 376 146 39.22
Source: Elaborated by the authors.
4.2 Evidence of commonality in liquidity
Figure 4.2.1 shows for each year the number of stocks, average value,
minimum and maximum values for commonality in liquidity. From 2007 to
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2015, the number of stocks selected to construct the sample increased,

possibly due to the raise in the number of participants in the Brazilian stock
market, to the increase of market liquidity, as well as to the increase of the
number of trades on B3 in the period.
Figure 4.2.1
AVERAGE RESULTS FOR COMMONALITY IN THE ANALYZED PERIOD
Year Number of stocks Average Minimum Maximum Standard deviation
2007 89 0.200 0.003 0.998 0.172
2008 129 0.189 0.001 0.910 0.151
2009 123 0.194 0.001 0.998 0.185
2010 147 0.197 0.000 0.894 0.151
2011 157 0.174 0.002 0.997 0.148
2012 162 0.167 0.000 0.998 0.152
2013 168 0.177 0.001 0.999 0.156
2014 171 0.204 0.000 0.996 0.159
2015 169 0.176 0.001 0.997 0.143
General average 146 0.186 0.001 0.976 0.157
In addition, Figure 4.2.1 shows that the commonality found for the
Brazilian stock market, represented by the average value, is greater than that
found in the international literature (Chordia et al. (2000) found a value of
0.09 for commonality in the US market), but close to that found in the Brazilian
market (Silveira et al. (2014) found a value of 0.220 for commonality).
Besides, noting the values of commonality in liquidity for the Brazilian
stock market (Figure 4.2.1), we see that, during the subprime crisis period,
from 2007 to 2010, there was an increase in commonality values, with an
average value close to 0.20 and a maximum value of 0.998. In this sense,
based on the presented results, it may be said that commonality in liquidity
is a phenomenon present in the Brazilian stock market.
In addition, we aimed to analyze the existence of size effect for common-
ality in liquidity, that is, greater or smaller sensitivity of stocks to system-
atic variations in liquidity, depending on the size of the firm, as documented
in the international literature (Chordia et al., 2000; Pukthuanthong-Le &
Visaltanachoti, 2009; Syamala et al., 2014).
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To verify the existence of the size effect on commonality, we classified

st rd
the selected stocks in quartiles (from the 1 to the 3 quartile) on their
market value. After classifying them in quartiles, we analyzed the value of
the annual average commonality calculated for each quartile, seeking to
verify a growth in the value of commonality as the market value of the
sample rose across the quartiles. The results for the size effect analysis are
presented in Figure 4.2.2.
Figure 4.2.2
AVERAGE VALUE FOR COMMONALITY ACROSS QUARTILES
Commonality
Year
First quartile Second quartile Third quartile
2007 0.193 0.195 0.202
2008 0.194 0.193 0.188
2009 0.195 0.193 0.189
2010 0.193 0.192 0.193
2011 0.184 0.177 0.172
2012 0.161 0.159 0.162
2013 0.170 0.168 0.171
2014 0.191 0.192 0.200
2015 0.178 0.175 0.172
According to Figure 4.2.2, it is not possible to note the existence of size

effect based on the annual averages of commonalities for each quartile, that
is, as firm size increases, commonality in liquidity does not grow. One
possible conclusion to be drawn from such result is a greater sensitivity of
smaller-sized stocks to commonality, as found by Tayeh et al. (2015), since,
in the results shown in Figure 4.2.2, we notice an increased average value of
commonality for smaller-sized stocks in periods of crisis (subprime crisis
and political crisis).
One possible reason for the size effect not to be present could be the
influence of extreme values for some stocks within the quartiles; however,
the average was winsorized at 10% for each quartile and the results did not
change, which, therefore, signals that size effect does not exist in commonality
in liquidity.
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4.3 Analyzing commonality in portfolios
4.3.1 Description of the portfolios
To verify whether investors will achieve a greater return for dealing with
assets with higher commonality in liquidity, this study aimed to identify the
existence of a premium for dealing with commonality in the portfolios. To
this end, ten portfolios were constructed based on the intersection of two
liquidity groups (Low and High) and five groups on commonality quintiles.
Figure 4.3.1.1 shows the yearly number of stocks in each portfolio in the
analyzed period.
Figure 4.3.1.1
AVERAGE NUMBER OF STOCKS PER PORTFOLIO PER YEAR
Portfolio/year 2007 2008 2009 2010 2011 2012 2013 2014 2015
LL/LC 8 10 12 14 15 18 19 17 19
LL/2C 8 10 13 15 15 14 17 17 15
LL/3C 7 9 11 14 13 16 16 17 17
LL/4C 8 10 11 13 14 14 15 16 17
LL/HC 7 11 12 15 18 15 16 17 18
HL/LC 7 10 12 15 15 14 14 16 15
HL/2C 8 11 10 13 16 16 16 17 19
HL/3C 8 10 13 15 16 14 17 17 17
HL/4C 7 10 13 15 16 16 18 17 17
HL/HC 8 10 12 14 13 16 17 16 16
Figure 4.3.1.2 shows the market value and return of the portfolios per
year. Therein, we see that the high liquidity stocks have a higher market
value when compared to lower liquidity stocks, which suggests a positive
relation between size and liquidity and, possibly, the use of stocks’ market
value as a possible proxy for liquidity, ratifying the findings of Machado and
Medeiros (2011).
In addition, Figure 4.3.1.2 shows the average return per year of each
portfolio, based on the 96 monthly data on return (July 2007 to June 2015).
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The average return per year ranged from -0.362% (portfolio LL/LC) to
0.095% (portfolio LL/3C).
Figure 4.3.1.2
MARKET VALUE AND AVERAGE RETURN OF PORTFOLIOS PER YEAR
(THOUSANDS)
Portfolio/
2007 2008 2009 2010 2011 2012 2013 2014 2015
year
LL/LC 33,259 15,629 21,800 21,264 23,087 34,134 32,552 18,579 20,891
LL/2C 30,122 18,559 24,580 47,522 20,292 23,293 30,711 23,678 13,835
LL/3C 36,867 18,545 15,963 21,620 34,260 32,256 28,239 30,273 21,947
LL/4C 35,498 16,030 11,955 17,326 27,076 27,485 25,381 21,273 22,719
LL/HC 23,083 48,596 16,573 177,731 108,572 71,973 64,255 80,175 83,601
HL/LC 324,793 274,654 218,426 266,856 305,653 274,208 208,286 360,404 371,428
HL/2C 276,651 300,932 232,031 322,741 389,622 373,858 356,403 415,802 413,304
HL/3C 220,605 303,227 284,314 380,836 295,874 358,611 385,735 300,974 479,054
HL/4C 177,661 255,741 237,459 395,533 409,728 332,639 428,312 397,112 295,139
HL/HC 342,043 200,165 284,863 257,291 266,023 384,801 407,208 393,519 348,836
Average return of portfolios per year
Portfolio/
2007 2008 2009 2010 2011 2012 2013 2014 2015
year
LL/LC -0.362 -0.080 -0.333 0.028 -0.011 0.028 -0.012 -0.040 0.004
LL/2C -0.051 -0.075 0.086 0.025 0.001 0.013 -0.004 -0.036 -0.052
LL/3C -0.042 -0.081 0.095 0.029 0.016 0.040 -0.016 0.000 -0.037
LL/4C 0.015 -0.049 0.079 0.025 0.026 0.018 -0.014 -0.021 -0.031
LL/HC -0.010 -0.063 0.089 0.007 -0.008 0.015 -0.006 -0.005 0.031
HL/LC 0.025 -0.026 0.052 -0.003 -0.010 0.011 0.003 -0.001 0.007
HL/2C 0.021 -0.057 0.040 -0.004 -0.020 0.005 -0.004 0.005 0.005
HL/3C 0.019 -0.043 0.049 -0.004 -0.018 0.024 0.015 -0.004 -0.001
HL/4C 0.037 -0.028 0.035 0.004 -0.003 0.020 0.001 -0.004 0.012
HL/HC 0.027 -0.032 0.028 0.037 0.005 0.015 -0.007 -0.001 0.018

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Regarding commonality, the portfolios formed by high-commonality

stocks were expected to have returns superior to those of portfolios formed
by low-commonality stocks. This pattern is not common to all years when
portfolio returns are compared. However, on average, the returns of portfo-
lios containing high-commonality stocks were superior to those of low-
-commonality portfolios, indicating the existence of a premium for com-
monality in liquidity in the Brazilian stock market, in the analyzed period.
4.3.2 Analyzing risk factors
After constructing the portfolios, we found the monthly risk premium

for investors to deal with commonality in liquidity. Figure 4.3.2.1 shows the
monthly premium for market, size, B/M, momentum, liquidity and common-
ality as risk factors, according to the used proxies. The monthly premium
results from the monthly average of the 96 months selected (from July 2007
to June 2015). Besides monthly premium, Figure 4.3.2.1 shows the standard
deviation, t-test, p-value as well as minimum and maximum values.
Figure 4.3.2.1
RISK FACTOR MONTHLY PREMIUMS
Factors Average (%) Standard deviation t-Test P-value Minimum Maximum
Market 0.397 0.059 0.658 0.512 -0.255 0.121
Size -0.227 0.041 -0.538 0.592 -0.065 0.266
Book-to-market -2.087 0.053 -3.817 0.000 -0.111 0.272
Momentum 1.240 0.054 2.241 0.027 -0.279 0.300
Liquidity -1.220 0.045 -2.606 0.011 -0.170 0.120
Commonality 4.165 0.282 1.448 0.151 -0.108 2.541
We note that the market monthly premium for the analyzed period was
0.397% per month, however, not statistically significant. Although not
significant, market premium value is very inferior to that of Machado and
Medeiros (2011), who found a premium of 3.09%. A possible explanation
for such difference is the effect of international financial crises occurred in
the analyzed period (2007-2015), as well the effect of the small growth of
the Brazilian economy, followed by the raise of benchmark interest rates.
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As for size, the results obtained in Figure 4.3.2.1 show that the difference
between the average returns of the small and big portfolios was negative and
not statistically significant, indicating that there is no premium for size factor
in the Brazilian stock market, corroborating the findings of Machado and
Medeiros (2011).
We also found no evidence of the B/M factor in the Brazilian stock
market, as suggested in Figure 4.3.2.1, since the difference between the
average return of the portfolios formed by high-B/M firms and the returns
of the portfolios formed by low-B/M stocks was negative. Corroborating the
results of Machado and Medeiros (2011), this research also found a negative
premium for B/M of 2.087% per month, statistically significant at 1%.
As to momentum, we found a premium of 1.24% per month, significant
at 5%, ratifying the findings of Machado and Medeiros (2011), who found a
return of 1.7% per month for momentum, therefore, confirming the existence
of a momentum effect in the Brazilian stock market.
The illiquidity variable of Amihud (2002) was used to obtain the liquidity
premium and the results in Figure 4.3.2.1 show a statistically significant
negative premium of 1.22. The evidence of a statistically significant liquidity
effect corroborates the findings of Machado and Medeiros (2011), who
found a statistically significant positive premium (0.766%) for liquidity in
As to commonality, we found a premium of 4.165% per month, which,
although not statistically significant, ratifies the findings of Lee (2011), who
found a positive – not statistically significant – premium (close to zero) for
developed markets. However, this result is contrary to that obtained by
Anderson et al. (2016), who found a commonality premium between 0.218%
and 0.438%, depending on the liquidity measure to be used, for the US market.
4.3.3 Analyzing commonality risk factor
Finally, we aimed to analyze the relation of commonality in liquidity

with the other risk factors. Figure 4.3.3.1 shows the correlation matrix for
all analyzed factors. According to Figure 4.3.3.1, the correlations between
the factors are low, except between liquidity and market factors, which was
moderate (0.546), and between size and B/M factors (0.511).
The correlation matrix also shows a positive and significant correlation
between size and liquidity factors, ratifying the findings of Figure 4.3.1.2, in
which market value could be a proxy for liquidity, corroborating the findings
of Machado and Medeiros (2011).
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Figure 4.3.3.1
CORRELATION MATRIX OF RISK FACTORS AND COMMONALITY
Market Size BM Momentum Liquidity Commonality
Market 1
Size -0.239** 1
BM -0.001 0.511*** 1
Momentum -0.297*** 0.049 0.011 1
Liquidity 0.546*** 0.279*** 0.075 -0.116 1
Commonality -0.068 0.045 0.058 -0.069 -0.184 1
***,** significant at 1% and 5% respectively.
In addition, the commonality factor showed no significant correlation

with the market factor (-0.068). According to Figure 4.3.3.1, the liquidity
and commonality factors had a negative and statistically non-significant
correlation (-0.184), suggesting that these factors behave differently, since
they have a negative correlation.
With the aim of verifying if commonality in liquidity constitutes a priced
risk factor in the Brazilian stock market, the two-stage regression process
was used with standard error corrected by the Shanken (1992) method, as
in equations 4 and 5. The objective of the two-stage regression is to verify
the significance of the coefficients estimated in the second stage and, in
special, the significance of the coefficient for the commonality factor, in that,
being statistically significant, it suggests that the commonality factor is
priced in the Brazilian stock market. The results are shown in Figure 4.3.3.2.
Figure 4.3.3.2
TWO-STAGE REGRESSION COEFFICIENTS
Panel A: Stage 1 Panel B: Stage 2
Shanken
Coef. t-statistics Coef.
t-statistics
Intercept -0.002 -1.782 Intercept -0.003 -0.652
βi,mkt 1.084 26.622 λ1 0.014 1.906
βi,smb 0.286 7.249 λ2 -0.081 -12.544
(continue)
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Figure 4.3.3.2 (conclusion)

TWO-STAGE REGRESSION COEFFICIENTS
Panel A: Stage 1 Panel B: Stage 2
Shanken
Coef. t-statistics Coef.
t-statistics
β,hml -0.052 -1.612 λ3 -0.009 -1.112
βi,mom 0.222 7.803 λ4 0.008 0.835
βi,liq 0.127 1.064 λ5 -0.011 -5.937
βi,pcom -0.182 -0.951 λ6 0.043 8.705
In which βi , mkt , βi ,smb , βi ,hml , βi ,mom , βi ,liq e βi , pcom are premium coefficients for market, size, book-to-market, momentum,
liquidity and commonality. Moreover, λ1, λ2, λ3, λ4, λ5 and λ6 are coefficients for the parameters βî , mkt , βî , smb , βî , hml , βî , mom , βî , liq e βî , pcom
βî , mkt , βî , smb , βî , hml , βî , mom , βî , liq e βî , pcom obtained in the first phase.
( )
−1
The standard error was corrected by the factor of Shanken 1 + λˆ ' Σˆ −f 1λˆ ,, in which Σˆ f , is the covariance matrix of
MKT, SMB, HML, MOM, LIQ and PCOM factors, and λˆ , is the estimated parameters matrix.
According to the results shown in Figure 4.3.3.2, the commonality factor

constitutes a priced risk factor in the Brazilian stock market, having a posi-
tive and statistically significant coefficient at 1%. Therefore, although we
note no statistically significant premium for commonality in liquidity in the
Brazilian stock market (Figure 4.3.2.1.), in the economic sense, commonality
in liquidity positively influences stock returns. Thus, based on these results,
Hypothesis 1 – that the commonality factor is priced and has a positive rela-
tion with returns – cannot be rejected.
In addition, identifying the pricing of commonality in liquidity in the
Brazilian stock market corroborates the argument of Chordia et al. (2000),
that commonality constitutes a non-diversifiable priced risk factor (for it is
a systematic effect), for which investors must demand a higher return to
deal with the risk of commonality in liquidity.
According to the results of Figure 4.3.2.1, there is an economically posi-
tive premium for the strategy based on commonality, even though there is
no statistical significance. This result may derive from the liquidity measure
3
used , and from the process of portfolio formation, because, according to
3
Tests were conducted on two liquidity measures: traded volume and turnover. In both cases,
commonality yielded – economically – a positive premium, but with no statistical significance.
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evidences of Anderson et al. (2016), depending on the liquidity measure

used, we note a higher premium that is both economically and statistically
significant for commonality in liquidity.
In addition, to better understand the commonality risk premium and its
exposition to the other risk factors commonly documented in the literature,
we followed the strategy adopted by Fama and French (2015) and Anderson
et al. (2016). The study of such exposition of the commonality factor to the
other risk factors is meant to verify if the commonality factor is not redun-
dant, that is, if it is not absorbed by the other risk factors. Figure 4.3.3.3
presents the results obtained.
First, we regressed the commonality risk premium on the CAPM model
only to add the other risk factors next, up to the formation of the five-factor
risk pricing model (market, size, book-to-market, momentum, and liquidity).
The initial results showed that, in the three- and four-factor CAPM models,
no factor was significant to explain the commonality factor, indicating that
this is a unique factor, which may, for example, be used in an asset-pricing
model.
Finally, the five-factor pricing model was used. Thus, the monthly pre-
miums of commonality in liquidity were used as an independent variable
and market, size, B/M, momentum and liquidity were risk factors used as
explanatory variables, as in Equation 6.
Figure 4.3.3.3
EXPOSITION OF THE COMMONALITY PREMIUM
TO THE OTHER RISK FACTORS
α ( SMB) + hi ( HML ) + mi ( Mom ) +

+ β i Market  + si
P _ Com = li ( LIQ ) + ε i
Model Intercept βi si hi mi li F statistic Adj. R2
5 factors 0.029 0.497 1.048 0.012 -0.412 -1.803*** 1.134 0.007
*** significant at 1%.
The results of Figure 4.3.3.3 show that the commonality risk factor is
partly explained by the liquidity risk factor, despite its low explanatory
power, since the liquidity factor was statistically significant at 1%. This
result may be associated with the findings of Acharya and Pedersen (2005),
who demonstrated that three types of liquidity risk influence asset returns.
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In addition, this result contradicts the findings of Anderson et al. (2016),

who, when analyzing the exposition of commonality premium to the other
risk factors, by using the effective spread liquidity measure, verified that the
commonality factor was redundant when exposed to the market, size and
momentum factors. However, the redundancy of the commonality factor to
the other risk factors is believed to be associated with the liquidity measure
used to obtain commonality, because, as per the evidences of Anderson et al.
(2016), when the price impact measure is used, the commonality factor is
no longer redundant.
5. CONCLUSION
This study aimed to verify if commonality in liquidity is priced in the
Brazilian stock market. To this end, we obtained the value of commonality
in liquidity for the analyzed period and the monthly premium for a strategy
based on commonality in liquidity. In addition, we investigated whether
commonality constitutes a priced risk factor in the Brazilian stock market, and
we analyzed if the commonality factor is absorbed by the other risk factors.
The results demonstrated that commonality for the Brazilian stock
market had, throughout 108 months, an average value of 0.186, superior to
that found in the international literature, and it may be considered reasonable
due to the huge variety of variables that may influence the stock market
which cannot be used in one single statistical model. Moreover, commonality
in liquidity was found to be a priced risk factor not absorbed by the other
risk factors noted in the literature; for this reason, the hypothesis of this
study – that commonality is priced and has a positive relation with returns
in the Brazilian stock market – cannot be rejected.
As far as implications for investors are concerned, we identified an increase
in the transaction cost in periods of market decline, due to the increase of
commonality. Although we noted a positive premium for the investment
strategy based on commonality in liquidity, its average value was not found
to be statistically significant. In addition, one contribution is the economic
evidence that commonality is priced, and its effect is greater on smaller-
sized firms.
Finally, in terms of practical implications, we may conclude that inves-
tors must pay more attention to the commonality risk in their portfolios, as
they process orders, and, to the moment of trading, due to the increase of
transaction costs of stocks that have more sensitivities to commonality in
liquidity.
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A COMUNALIDADE NA LIQUIDEZ É UM FATOR

DE RISCO PRECIFICÁVEL?
RESUMO
Objetivo: Analisar se a comunalidade na liquidez é precificada e sua rela-

ção com o retorno acionário no mercado acionário brasileiro.
Originalidade/valor: Por causa da incipiência, na literatura financeira bra-
sileira, do tema comunalidade na liquidez, este artigo proporciona o
desenvolvimento do conhecimento acerca do efeito da comunalidade na
liquidez para o investidor, investigando se uma estratégia de investi-
mento em ativos mais sensíveis a variações sistemáticas da liquidez é
atrativa para os investidores, condizente com a trade off risco-retorno.
Design/metodologia/abordagem: Para identificar o efeito da comunalidade
para o investidor, optou-se pela utilização de carteiras. Adotando como
amostra as empresas listadas na B3, foram desenvolvidas regressões em
série de tempo, no período de janeiro de 2007 a dezembro de 2015.
Resultados: Verificou-se que a comunalidade é um fenômeno presente
no mercado acionário brasileiro e que os seus maiores valores se concen-
traram nos períodos das crises financeiras internacionais. Ademais, com
a utilização de carteiras, observou-se um prêmio de 4,165% ao mês para
a comunalidade na liquidez, apesar de não significativo estatisticamente.
Por fim, constatou-se que a comunalidade na liquidez constitui um fator
de risco precificável e, ao expô-lo aos demais fatores de risco, verificou-se
que o fator de risco liquidez conseguiu parcialmente capturá-lo.
PALAVRAS-CHAVE
Comunalidade. Investimento. Liquidez. Risco. Retorno.
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AUTHOR NOTES
Cláudio P. Silva Júnior, doctor in Administration by the Graduate Program in Administration,
Federal University of Paraíba (UFPB); Márcio A. V. Machado, doctor in Administration by the
Graduate Program in Administration, University of Brasília (UnB).
Cláudio P. Silva Júnior is now assistant professor at the Management Department of Federal
University of Paraíba (UFPB); Márcio A. V. Machado is now associate professor at the Management
Department of Federal University of Paraíba (UFPB).
Correspondence concerning this article should be addressed to Márcio A. V. Machado, Cidade
Universitária, campus I, Castelo Branco, João Pessoa, Paraíba, Brazil, CEP 58.051-900.
E-mail: [email protected]
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doi:10.1590/1678-6971/eRAMF200158

Is Commonality in Liquidity A Priced Risk Factor?: Cláudio P. Silva Júnior

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ISSN 1678-6971 (electronic version) • RAM, São Paulo, 21(2), eRAMF200158, 2020

Strategic Finance, doi:10.1590/1678-6971/eRAMF200158

CLÁUDIO P. SILVA JÚNIOR1

Submission: Oct. 19, 2018. Acceptance: Aug. 9, 2019.

Purpose: Analyze if the commonality in liquidity is priced and its relation

Commonality. Investment. Liquidity. Risk. Return.

Based on this, investors must be more attentive to the variance in liquidity

• Is commonality in liquidity a priced risk factor in the Brazilian stock

In Brazil, the studies about commonality in liquidity are recent (Victor

2. COMMONALITY IN LIQUIDITY: THEORETICAL

In the financial literature, there are few studies about commonality in

2.1 Research hypothesis

As per the content of item 2, our research hypothesis is associated with

• H1: Commonality is priced and has a positive relation with returns in

for comprising different moments in the stock market, such as financial

3.2 Econometric model

3.2.1 Measuring commonality in liquidity

To analyze commonality in the Brazilian stock market, we used the

Liqi , id, d−−1,1,t t ++∑

β 0 i ,t + β1i ,t uˆm ,d ,t + β 2 i ,t uˆm ,d +1,t + β 3i ,t uˆm ,d −1,t + ei ,d ,t (2)

in which Commonalityi,m,t is the individual commonality in liquidity of stock i

3.2.2 Analyzing the risk of commonality in portfolios

Commonality in liquidity constitutes a source of non-diversifiable risk

in which Ri ,t ( ) is the monthly return of the portfolios constructed on com-

coefficients of the following risk factors: market, size, BM, momentum,

covariance matrix of market, size, B/M, momentum, liquidity and common-

α ( SMB) + hi ( HML ) + mi ( Mom ) +

Source: Elaborated by the authors.

4.2 Evidence of commonality in liquidity

2015, the number of stocks selected to construct the sample increased,

Source: Elaborated by the authors.

To verify the existence of the size effect on commonality, we classified

Source: Elaborated by the authors.

According to Figure 4.2.2, it is not possible to note the existence of size

4.3 Analyzing commonality in portfolios

4.3.1 Description of the portfolios

Source: Elaborated by the authors.

Average return of portfolios per year

Source: Elaborated by the authors.

Regarding commonality, the portfolios formed by high-commonality

4.3.2 Analyzing risk factors

After constructing the portfolios, we found the monthly risk premium

Market 0.397 0.059 0.658 0.512 -0.255 0.121

Size -0.227 0.041 -0.538 0.592 -0.065 0.266

Book-to-market -2.087 0.053 -3.817 0.000 -0.111 0.272

Momentum 1.240 0.054 2.241 0.027 -0.279 0.300

Liquidity -1.220 0.045 -2.606 0.011 -0.170 0.120

Commonality 4.165 0.282 1.448 0.151 -0.108 2.541

Source: Elaborated by the authors.

4.3.3 Analyzing commonality risk factor

Finally, we aimed to analyze the relation of commonality in liquidity

Source: Elaborated by the authors.

In addition, the commonality factor showed no significant correlation

Figure 4.3.3.2 (conclusion)

βi,mom 0.222 7.803 λ4 0.008 0.835

βi,liq 0.127 1.064 λ5 -0.011 -5.937

βi,pcom -0.182 -0.951 λ6 0.043 8.705

Source: Elaborated by the authors.

According to the results shown in Figure 4.3.3.2, the commonality factor