This paper studies banks’decision whether to borrow from the interbank market or to sell assets in order to cover liquidity shortage in presence of credit risk. The following trade-off arises. On the one hand, tradable assets decrease the cost of liquidity management. On the other hand, uncertainty about credit risk of tradable assets might spread from the secondary market to the interbank mark...

The conference presentation focused on recent results on dynamic trading patterns in limit order markets, primarily foreign exchange and money markets. Clear feedbacks are observed between liquidity, volatility and volume. These results suggest that any regulatory regime for market liquidity should appreciate these feedback rules, and treat liquidity risk as endogenously determined, rather than...

Liquid assets are critical for banking operations. They guarantee avoiding liquidity risk and widens managerial decision options to invest in emerging profitable projects; however, holding extra liquidity entails opportunity costs. Accordingly, empirical literature does not provide a conclusive relationship between liquidity and profitability. The purpose of this research is to analyze the asym...

We introduce a new semiparametric model, GARCH with Functional EX ogeneous Liquidity (GARCH-FunXL), to capture the impact of liquidity, as implied by a stock exchange’s complete electronic limit order book (LOB), on asset price volatility. LOB-implied liquidity can be viewed as a functional rather than scalar or vectorial stochastic process. We adopt recent ideas from the functional data analys...

I. Conceptual studies of market liquidity Dupont, D " The effects of transaction costs on depth and spread " Gravelle, T " The market microstructure of dealership equity and government securities markets: how they differ " Muranaga, J and Shimizu, T " Market microstructure and market liquidity " Ui, T " Transparency and liquidity in securities markets " II. Empirical studies of market liquidity...

This paper looks into how the liquidity of Hong Kong stock market has evolved since the Asian financial crisis, and examines the determinants of changes in liquidity. Various conventional liquidity indicators are constructed for the study period from 1997 to June 2001, and they show that, having deteriorated during the Asian financial crisis and the Russia crisis, market liquidity has mostly re...

The results presented in this paper show that integrative financial and operating measures of liquidity provide investors and creditors with information beyond that provided by static measures of short-term liquidity such as the current and quick ratios. Using a sample of restaurant firms over the period 1994–2003, our analysis shows dynamic measures of liquidity provide a drastically different...

I discuss some simple microfoundations for Liquidity Deflation, a concept put forward in Calvo (2016 a and b), which can give rise to liquidity trap conditions under perfectly flexible prices. Unlike in Keynes (1936), this is a Supply Side Liquidity Trap. Moreover, modeling the policy interest rate as the rate of return on money-like instruments à la Calvo and Végh (1995), denoted by i!, I show...

We estimate the probability of informed trading (Pi) in an order-driven stock market and perform a comprehensive analysis on the interrelations among Pi and three common performance indicators: liquidity, volatility, and efficiency. We find that uninformed traders exhibit price chasing behavior, and price volatility attracts uninformed traders. Using 3SLS which considers the endogeneity of Pi a...