Common Determinants of Bond and Stock Market Liquidity

Common Determinants of Bond and Stock Market Liquidity
Author:
Publisher:
Total Pages:
Release: 2001
Genre: Bonds
ISBN:
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"We study common determinants of daily bid-ask spreads and trading volume for the bond and stock markets over the 1991-98 period. We find that spread changes in one market are affected by lagged spread and volume changes in both markets. Further, spread and volume changes are predictable to a considerable degree using lagged market returns, lagged interest rates, lagged spreads, and lagged volume. During periods of financial crisis, stock and bond spreads and volume are more volatile and become more highly correlated; moreover, at these times, money supply positively affects financial market liquidity, albeit with a lag of two weeks. During normal times, increases in mutual fund flows enhance stock market liquidity and trading volume, but during financial crises, U.S. government bond funds see higher inflows, resulting in increased bond market liquidity. Overall, this study deepens our understanding of the dynamics of liquidity in financial markets and suggests how asset allocation strategies might be designed to reduce trading costs"--Federal Reserve Bank of New York web site.

Stock Market Liquidity

Stock Market Liquidity
Author: François-Serge Lhabitant
Publisher: John Wiley & Sons
Total Pages: 502
Release: 2008-01-09
Genre: Business & Economics
ISBN: 0470181699
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Brings together today's best financial minds across the world to discuss the issue of liquidity in today's markets. It is often proxied by trade-based measures (such as trading volume, frequency of trading, dollar value of shares trade, etc), order based measures and price impact measures.

An Empirical Analysis of Stock and Bond Market Liquidity

An Empirical Analysis of Stock and Bond Market Liquidity
Author:
Publisher:
Total Pages:
Release: 2003
Genre: Bonds
ISBN:
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"This paper explores liquidity movements in stock and Treasury bond markets over a period of more than 1800 trading days. Cross-market dynamics in liquidity are documented by estimating a vector autoregressive model for liquidity (that is, bid-ask spreads and depth), returns, volatility, and order flow in the stock and bond markets. We find that a shock to quoted spreads in one market affects the spreads in both markets, and that return volatility is an important driver of liquidity. Innovations to stock and bond market liquidity and volatility prove to be significantly correlated, suggesting that common factors drive liquidity and volatility in both markets. Monetary expansion increases equity market liquidity during periods of financial crises, and unexpected increases (decreases) in the federal funds rate lead to decreases (increases) in liquidity and increases (decreases) in stock and bond volatility. Finally, we find that flows to the stock and government bond sectors play an important role in forecasting stock and bond liquidity. The results establish a link between "macro" liquidity, or money flows, and "micro" or transactions liquidity"--Federal Reserve Bank of New York web site.

Market Liquidity

Market Liquidity
Author: Yakov Amihud
Publisher: Cambridge University Press
Total Pages: 293
Release: 2012-11-12
Genre: Business & Economics
ISBN: 1139560158
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This book presents the theory and evidence on the effect of market liquidity and liquidity risk on asset prices and on overall securities market performance. Illiquidity means incurring a high transaction cost, which includes a large price impact when trading and facing a long time to unload a large position. Liquidity risk is higher if a security becomes more illiquid when it needs to be traded in the future, which will raise trading cost. The book shows that higher illiquidity and greater liquidity risk reduce securities prices and raise the expected return that investors require as compensation. Aggregate market liquidity is linked to funding liquidity, which affects the provision of liquidity services. When these become constrained, there is a liquidity crisis which leads to downward price and liquidity spiral. Overall, the volume demonstrates the important role of liquidity in asset pricing.

An Empirical Analysis of Stock and Bond Market Liquidity

An Empirical Analysis of Stock and Bond Market Liquidity
Author: Tarun Chordia
Publisher:
Total Pages: 61
Release: 2006
Genre:
ISBN:
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We study the joint time-series of daily liquidity in government bond and stock markets over the period 1991 to 1998. Innovations in liquidity are positively and significantly correlated across stock and bond markets. Further, order imbalances in the stock market impact bond and stock liquidity, even after controlling for order imbalances in the bond market. Both results suggest the existence of a common liquidity factor in stock and bond markets. We consider monetary conditions and mutual fund flows as sources of order flow and as primitive determinants of liquidity. Monetary expansion enhances stock market liquidity during crises. U.S. government bond funds see higher inflows and equity funds see higher outflows during financial crises, and these flows are associated with decreased liquidity in stock and bond markets. Our results establish a link between quot;macroquot; liquidity, or money flows, and quot;microquot; or transactions liquidity.

Market Liquidity

Market Liquidity
Author: Thierry Foucault
Publisher: Oxford University Press
Total Pages: 441
Release: 2013-04-04
Genre: Business & Economics
ISBN: 0199936242
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This book offers an authorative take on the liquidity of securities markets, its determinants, and its effects. It presents the basic modeling and econometric tools used in market microstructure - the area of finance that studies price formation in securities markets.

The Determinants of Liquidity in the Corporate Bond Markets

The Determinants of Liquidity in the Corporate Bond Markets
Author: George Chacko
Publisher:
Total Pages: 60
Release: 2009
Genre:
ISBN:
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We present a new measure of liquidity known as acirc;not;Slatent liquidityacirc;not;? and apply it to a unique corporate bond database to discern the characteristics of bonds that lead to higher liquidity. Unlike conventional measures of liquidity, such as trading volume and bid-ask spreads, our measure of liquidity does not use transactional information; instead, it uses information about the ownership of securities to measure the accessibility of a security by a securities dealer. Therefore, our measure has the important advantage of being able to assess liquidity for markets with extremely low trading activity, where transactions data are insufficient to compute traditional measures of liquidity, but where liquidity is still an important issue. We relate our proposed latent liquidity measure to bond characteristics such as amount outstanding, credit quality, maturity, age, optionality and industry segment. In the liquid segments of the market, where trade-based measures of liquidity are available, our proposed measure exhibits similar relationships to bond characteristics as the trade-based measures. However, latent liquidity exhibits greater consistency in terms of its relationships with bond characteristics, over time. In addition, in the illiquid segment of the market, the relationships of our measure to bond characteristics are also similar to what we observe in the liquid segment. This leads us to believe that our measure is a viable measure of liquidity, when trade-based measures are unavailable.