Liquidity and leverage Adrian, Tobias; Shin, Hyun Song
Journal of financial intermediation,
07/2010, Letnik:
19, Številka:
3
Journal Article
Recenzirano
In a financial system in which balance sheets are continuously marked to market, asset price changes appear immediately as changes in net worth, and eliciting responses from financial intermediaries ...who adjust the size of their balance sheets. We document evidence that marked-to-market leverage is strongly procyclical. Such behavior has aggregate consequences. Changes in dealer repos – the primary margin of adjustment for the aggregate balance sheets of intermediaries – forecast changes in financial market risk as measured by the innovations in the Chicago Board Options Exchange Volatility Index VIX index. Aggregate liquidity can be seen as the rate of change of the aggregate balance sheet of the financial intermediaries.
Gamma positioning and market quality Buis, Boyd; Pieterse-Bloem, Mary; Verschoor, Willem F.C. ...
Journal of economic dynamics & control,
July 2024, 2024-07-00, Letnik:
164
Journal Article
Recenzirano
Odprti dostop
In this paper, we study the effect of the gamma positioning of dynamic hedgers on market quality through simulations. In our zero-intelligence model, the presence of dynamic hedgers enhances market ...liquidity under normal conditions. However, positive gamma helps sustain liquidity in stressed scenarios, while negative gamma depletes it. We find that an increase in the net gamma positioning of dynamic hedgers reduces volatility and increases market stability, whereas a negative gamma positioning increases volatility and makes the market more prone to failure. Price discovery typically worsens when dynamic hedgers become more prevalent, regardless of the sign of their positioning. Our findings imply that steering the net gamma position of dynamic hedgers can be considered a policy instrument to improve market quality, especially for instruments with low liquidity or low traded volume.
We examine the liquidity of 456 different cryptocurrencies, and show that return predictability diminishes in cryptocurrencies with high market liquidity. We show that whilst Bitcoin returns are ...showing signs of efficiency, numerous cryptocurrencies still exhibit signs of autocorrelation and non-independence. Our findings also show a strong relationship between the Hurst exponent and liquidity on a cross-sectional basis. Therefore, we conclude that liquidity plays a significant role in market efficiency and return predictability of new cryptocurrencies.
•We examine 456 cryptocurrencies.•Return predictability diminishes as liquidity increases in cryptocurrencies.•Volatility decreases as liquidity increases in cryptocurrencies.•There are no signs of an illiquidity premium.
Stock market liquidity and firm value Noe, Thomas H; Fang, Vivian W; Tice, Sheri
Journal of financial economics,
10/2009, Letnik:
94, Številka:
1
Journal Article
Recenzirano
This paper investigates the relation between stock liquidity and firm performance. The study shows that firms with liquid stocks have better performance as measured by the firm market-to-book ratio. ...This result is robust to the inclusion of industry or firm fixed effects, a control for idiosyncratic risk, a control for endogenous liquidity using two-stage least squares, and the use of alternative measures of liquidity. To identify the causal effect of liquidity on firm performance, we study an exogenous shock to liquidity--the decimalization of stock trading--and show that the increase in liquidity around decimalization improves firm performance. The causes of liquidity's beneficial effect are investigated: Liquidity increases the information content of market prices and of performance-sensitive managerial compensation. Finally, momentum trading, analyst coverage, investor overreaction, and the effect of liquidity on discount rates or expected returns do not appear to drive the results.
This study examines option market liquidity using Ivy DB's OptionMetrics data. We establish convincing evidence of commonality for various liquidity measures based on the bid–ask spread, volumes, and ...price impact. The commonality remains strong even after controlling for the underlying stock market's liquidity and other liquidity determinants such as volatility. Smaller firms and firms with a higher volatility exhibit stronger commonalities in option liquidity. Aside from commonality, we also uncover several other important properties of the option market's liquidity. First, information asymmetry plays a much more dominant role than inventory risk as a fundamental driving force of liquidity. Second, the market-wide option liquidity is closely linked to the underlying stock market's movements. Specifically, the options liquidity responds asymmetrically to upward and downward market movements, with calls reacting more in up markets and puts reacting more in down markets.
•This paper examines the connection between market liquidity and corporate asset mismatch.•Market liquidity is essential for enterprises in high-leverage, competitive banking environments to avoid ...asset mismatch.•The positive impact has been minimal in companies with limited bank rivalry and modest borrowing levels.
Based on the period from 2011 to 2021 and considering macroeconomic data, this paper analyzes the relationship between market liquidity and asset mismatch in manufacturing firms. Specifically, this paper reveals that market liquidity can mitigate manufacturing firms` asset mismatch by optimizing credit maturity structure. Further, heterogeneous effects exist in the impact of the policy above, both at a regional and individual level. Market liquidity is crucial in mitigating asset mismatch for companies operating in locations with intense competition among banks and high leverage levels. However, its impact has been minimal in companies with limited bank rivalry and modest borrowing levels.
This study examines the impact of analysts’ forecast of market liquidity and information efficiency in the U.S (developed) and Malaysia (emerging – Shariah-compliant stocks) before and during ...COVID-19. The results show that the analysts’ forecast is significant to the market liquidity in the pre-COVID period but its influence diminishes during the COVID-19. Moreover, the impact of the analysts’ forecast is significant in the upper quantiles (0.7 and 0.9 quantiles) of the U.S market and in the lower quantiles (0.1 and 0.3 quantiles) of Malaysia's Islamic market. Similarly, the buy-sell recommendations in the U.S market and all variables forecasted are significant before COVID-19. Both markets become inefficient during COVID-19, and analysts’ forecast is no longer correlated to information efficiency. These results inform practitioners and investors to inspect the market conditions and investor's behavior under market stress such as COVID-19, which has disrupted the international financial markets.
•This study uses high-frequency data to investigate tweets’ real-time effects on Bitcoin liquidity.•The evidence shows that a 1% increase in the volume of tweets leads to a 7% of Bitcoin liquidity ...improvement within the next five to 10 min.•The positive effect of tweets on liquidity statistically decays after the 60 min time interval.•The real-time impacts are stronger when tweets draw more attention by being retweeted, liked, and replied.
This study employs the number of tweets as a proxy for investor attention. We use high-frequency data to investigate tweets’ real-time effects on Bitcoin liquidity. We find that a 1% increase in tweets leads to about 7% of liquidity improvement in the next five to 10 min. In a precise timeline, we show that the positive impact of tweets decays after approximately an hour. We further find that impacts on liquidity are stronger when tweets draw more attention. This study thus suggests that active investor attention can significantly improve Bitcoin liquidity in real time.
This study measures the liquidity and volatility of the operation of the carbon trading and energy markets using liquidity ratio indicators and log return indicators. It adopts China's carbon trading ...and energy markets as the research objects, and evaluates the mean spillover effects and volatility spillover effects between the two using the vector autoregression (VAR) model and the BEKK-MGARCH model. The findings indicate that: (1) The liquidity of China's carbon trading market is better than that of the energy market. The average liquidity ratio of the Hubei and Shenzhen carbon trading markets is much lower than that of the coal market, 43016.131. It may be attributed to the fact that China's carbon trading market is currently small and easy to regulate. (2) The volatility of both the Chinese carbon trading market and energy market is small, and the absolute values of the mean log return rate are close to 0. It could be because China's carbon trading market is mainly distributed through free quota allocation, while the energy market has been mature and stable for many years. (3) There is a spillover effect between the carbon trading and energy markets in some parts of China, but the direction and degree of spillover effect vary, which may be due to differences in the economic development level, energy consumption structure, and environmental policies of each pilot carbon trading region. (4) The spillover effect between the two markets is stronger, perhaps due to China's current model of using coal as the main fuel.
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•Use the VAR and BEKK-MGARCH models to evaluate the spillover effect.•The liquidity of China's carbon trading market is better than the energy market.•The volatility of both the Chinese carbon trading and energy markets is small.•Spillover effects exist between China's carbon trading and energy markets.
We study third-party loan guarantees in a model in which lenders can screen and sell loans before maturity when in need of liquidity. Loan guarantees improve market liquidity, reduce lending ...standards, and can have a positive overall welfare effect. Guarantees improve the average quality of
nonguaranteed
loans traded and thus, the market liquidity of these loans because of selection. This positive pecuniary externality provides a rationale for guarantee subsidies. Our results contribute to a debate about reforming government-sponsored mortgage guarantees by Fannie Mae and Freddie Mac, suggesting that the excessively high subsidies to these guarantees should be reduced but not completely eliminated.
This paper was accepted by Kay Giesecke, finance.
