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Funding liquidity, market liquidity and TED spread : a two-regime model

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Organization
Abstract
We study the effect of market liquidity on equity-collateralized funding, accounting for endogeneity. Theory suggests market liquidity can affect funding liquidity in stabilizing and destabilizing manners. Using a new proxy for equity-collateralized funding liquidity of S & P 500 stocks over the period of July 2006 May 2011, we show that we can separate the two regimes using the yield spread of Eurodollars over T-bills (TED spread) and that a regime switch occurs near a TED spread of 48 basis points.
Keywords
TRADING ACTIVITY, STOCK, HETEROSKEDASTICITY, CREDIT, RISK, ASK, Equity-collateralized funding liquidity, Market liquidity, Two-regime, model, Financial distress

Citation

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Chicago
Boudt, Kris, Ellen C. S. Paulus, and Dale W. R. Rosenthal. 2017. “Funding Liquidity, Market Liquidity and TED Spread : a Two-regime Model.” Journal of Empirical Finance 43: 143–158.
APA
Boudt, K., Paulus, E. C. S., & Rosenthal, D. W. R. (2017). Funding liquidity, market liquidity and TED spread : a two-regime model. JOURNAL OF EMPIRICAL FINANCE, 43, 143–158.
Vancouver
1.
Boudt K, Paulus ECS, Rosenthal DWR. Funding liquidity, market liquidity and TED spread : a two-regime model. JOURNAL OF EMPIRICAL FINANCE. 2017;43:143–58.
MLA
Boudt, Kris, Ellen C. S. Paulus, and Dale W. R. Rosenthal. “Funding Liquidity, Market Liquidity and TED Spread : a Two-regime Model.” JOURNAL OF EMPIRICAL FINANCE 43 (2017): 143–158. Print.
@article{8600212,
  abstract     = {We study the effect of market liquidity on equity-collateralized funding, accounting for endogeneity. Theory suggests market liquidity can affect funding liquidity in stabilizing and destabilizing manners. Using a new proxy for equity-collateralized funding liquidity of S \& P 500 stocks over the period of July 2006 May 2011, we show that we can separate the two regimes using the yield spread of Eurodollars over T-bills (TED spread) and that a regime switch occurs near a TED spread of 48 basis points.},
  author       = {Boudt, Kris and Paulus, Ellen C. S. and Rosenthal, Dale W. R.},
  issn         = {0927-5398},
  journal      = {JOURNAL OF EMPIRICAL FINANCE},
  language     = {eng},
  pages        = {143--158},
  title        = {Funding liquidity, market liquidity and TED spread : a two-regime model},
  url          = {http://dx.doi.org/10.1016/j.jempfin.2017.06.002},
  volume       = {43},
  year         = {2017},
}

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