Dependence Structure of Volatility and Illiquidity on Vienna and Warsaw Stock Exchanges

In this paper, the results of an investigation into the relationship between the illiquidity and realized volatility of the time series of stocks listed on the Warsaw Stock Exchange (WSE) and Vienna Stock Exchange (VSE) are presented. The first measure of illiquidity is the well-known Amihud ratio (Amihud, 2002) called AMI, and the second is a transformation of the Liquidity Index (Danyliv et al., 2014) called ILLIX. In the study, the results of the detection of the structural breaks (and their removal), the calculation of long memory, and finally the dependence structure of the illiquidity and realized volatility by the copulas are also demonstrated. Both types of series exhibit structural breaks and long-memory properties. Despite the similarities in the illiquidity measures, their associations with the realized volatility is different. The dependence structures described by the copulas for the AMI-realized volatility pairs show a dependence in the upper tails; i.e., the high values of illiquidity are related to the high volatility. However, in the case of the ILLIX-realized volatility pairs, the dependence was detected in the lower tail; i.e., the low ILLIX is accompanied by the low realized volatility.