An Empirical Investigation on Funding Liquidity and Market Liquidity

Ji Yeong Chung, Dong Hyun Ahn, In Seok Baek, Kyu Ho Kang

Research output: Contribution to journalReview article

Abstract

In empirically exploring the link between funding liquidity and market liquidity, the greatest challenge is to designate a suitable market that shows such linkages. In this respect, the 15-year Japanese floating (JF)-rate bond market, characterized by the lack of diversity among highly leveraged trading strategies, is an ideal case for investigation. A clean measure of market liquidity, liquidity discount rate (LDR), is estimated from JF prices and the LDR is found to be intertwined with funding liquidity only during the crisis. The deterioration of funding liquidity precedes that of the LDR, thus providing evidence of the outbreak of liquidity spiral.

Original languageEnglish
Pages (from-to)1213-1247
Number of pages35
JournalReview of Finance
Volume22
Issue number3
DOIs
Publication statusPublished - 2018 May 1

Fingerprint

Funding
Empirical investigation
Market liquidity
Liquidity
Discount rate
Floating
Linkage
Bond market
Trading strategies
Deterioration

Keywords

  • Funding liquidity
  • Liquidity spiral
  • Market liquidity

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

An Empirical Investigation on Funding Liquidity and Market Liquidity. / Chung, Ji Yeong; Ahn, Dong Hyun; Baek, In Seok; Kang, Kyu Ho.

In: Review of Finance, Vol. 22, No. 3, 01.05.2018, p. 1213-1247.

Research output: Contribution to journalReview article

Chung, Ji Yeong ; Ahn, Dong Hyun ; Baek, In Seok ; Kang, Kyu Ho. / An Empirical Investigation on Funding Liquidity and Market Liquidity. In: Review of Finance. 2018 ; Vol. 22, No. 3. pp. 1213-1247.
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