Political uncertainty and commonality in liquidity

We examine whether political uncertainty affects commonality in liquidity worldwide. Using national elections as a proxy for political uncertainty across 40 countries over 2000-2019, we document a positive effect of political uncertainty on commonality in liquidity. This effect is stronger for firms with greater institutional ownership but weaker for those headquartered in countries with greater checks and balances and government stability, more market-friendly incumbent governments, and better institutional structures. Our findings support both the demand- and supply-side sources of liquidity as channels through which political uncertainty affects commonality in liquidity.