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 language | English |
|---|---|
| Pages (from-to) | 1213-1247 |
| Number of pages | 35 |
| Journal | Review of Finance |
| Volume | 22 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2018 May 1 |
Bibliographical note
Funding Information:This work was supported by the BK21Plus Program (Future-oriented innovative brain raising type, 21B20130000013) funded by the Ministry of Education (MOE, Korea), and National Research Foundation of Korea (NRF). They also gratefully acknowledge financial support from Social Science Korea (SSK).
Funding Information:
* The authors would like to thank Amit Goyal (the Editor) and an anonymous referee for helpful com-ment. This work was supported by the BK21Plus Program (Future-oriented innovative brain raising type, 21B20130000013) funded by the Ministry of Education (MOE, Korea), and National Research Foundation of Korea (NRF). They also gratefully acknowledge financial support from Social Science Korea (SSK). This paper is based on Chung’s Ph.D. dissertation.
Publisher Copyright:
© The Authors 2017. Published by Oxford University Press on behalf of the European Finance Association. All rights reserved.
Keywords
- Funding liquidity
- Liquidity spiral
- Market liquidity
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics