The rapid growth of China's financial technology has had a significant impact on businesses. The study of the relationship between macrofinancial technology and microbusinesses has important ...theoretical and practical implications. We empirically examined the relationship between FinTech, financing constraints, and corporate liquidity using the China Provincial Fintech Development Index and the data of A-share manufacturing companies listed on the Shanghai and Shenzhen Main Boards between 2011 and 2020. We found that financing constraints have a negative effect on a company's liquidity. The greater the constraints on corporate financing, the worse the liquidity. However, financial technology will have positive external effects and will mitigate the negative effect of financing constraints on corporate liquidity. In addition, we find that non-state-owned enterprises, small and medium-sized enterprises, and young enterprises face greater financing constraints and are thus more impacted by FinTech.
We analyze the optimal execution problem of a portfolio manager trading multiple assets. In addition to the liquidity and risk of each individual asset, we consider cross asset interactions in these ...two dimensions, which substantially enriches the nature of the problem. Focusing on the market microstructure, we develop a tractable order book model to capture liquidity supply/demand dynamics in a multiasset setting, which allows us to formulate and solve the optimal portfolio execution problem. We find that cross asset risk and liquidity considerations are of critical importance in constructing the optimal execution policy. We show that even when the goal is to trade a single asset, its optimal execution may involve transitory trades in other assets. In general, optimally managing the risk of the portfolio during the execution process affects the time synchronization of trading in different assets. Moreover, links in the liquidity across assets lead to complex patterns in the optimal execution policy. In particular, we highlight cases where aggregate costs can be reduced by temporarily “overshooting” one’s target portfolio.
This paper was accepted by Jerome Detemple, finance.
This paper studies the pricing of liquidity risk in the cross section of corporate bonds for the period from January 1994 to March 2009. The average return on bonds with high sensitivities to ...aggregate liquidity exceeds that for bonds with low sensitivities by about 4% annually. The positive relation between expected corporate bond returns and liquidity beta is robust to the effects of default and term betas, liquidity level, and other bond characteristics, as well as to different model specifications, test methodologies, and a variety of liquidity measures. The results suggest that liquidity risk is an important determinant of expected corporate bond returns.
Illiquidity and All Its Friends Tirole, Jean
Journal of economic literature,
06/2011, Letnik:
49, Številka:
2
Journal Article
Recenzirano
Odprti dostop
The recent crisis was characterized by massive illiquidity. This paper reviews what we know and don't know about illiquidity and all its friends: market freezes, fire sales, contagion, and ultimately ...insolvencies and bailouts. It first explains why liquidity cannot easily be apprehended through a single statistic, and asks whether liquidity should be regulated given that a capital adequacy requirement is already in place. The paper then analyzes market breakdowns due to either adverse selection or shortages of financial muscle, and explains why such breakdowns are endogenous to balance sheet choices and to information acquisition. It then looks at what economics can contribute to the debate on systemic risk and its containment. Finally, the paper takes a macroeconomic perspective, discusses shortages of aggregate liquidity, and analyzes how market value accounting and capital adequacy should react to asset prices. It concludes with a topical form of liquidity provision, monetary bailouts and recapitalizations, and analyzes optimal combinations thereof; it stresses the need for macro-prudential policies.
•I show that there is in general a positive relationship between the volatility of liquidity and returns for large capitalization cryptocurrencies.•This effect indicates that investors demand ...compensation for liquidity risk.•The effect is not present for the most liquid and popular cryptocurrency; Bitcoin.•Increasing liquidity over time in cryptocurrencies is found, though with a high variation over time.
In this paper I document a positive relation between the volatility of liquidity and expected returns. Specifically, I analyze the relationship between the idiosyncratic volatility of market liquidity and the returns of the five largest cryptocurrencies by market capitalization. I find that the correlation between liquidity volatility and returns is overall significantly positive, but highly time-varying. This implies that investors demand a premium for a high variation in liquidity volatility. I furthermore find that the correlation between returns and the level of liquidity is mostly positive, thus, when liquidity is low, expected returns are high. The results corroborates results from other financial markets.
We study the exposure of the US corporate bond returns to liquidity shocks of stocks and Treasury bonds over the period 1973–2007 in a regime-switching model. In one regime, liquidity shocks have ...mostly insignificant effects on bond prices, whereas in another regime, a rise in illiquidity produces significant but conflicting effects: Prices of investment-grade bonds rise while prices of speculative-grade (junk) bonds fall substantially (relative to the market). Relating the probability of these regimes to macroeconomic conditions we find that the second regime can be predicted by economic conditions that are characterized as “stress.” These effects, which are robust to controlling for other systematic risks (term and default), suggest the existence of time-varying liquidity risk of corporate bond returns conditional on episodes of flight to liquidity. Our model can predict the out-of-sample bond returns for the stress years 2008–2009. We find a similar pattern for stocks classified by high or low book-to-market ratio, where again, liquidity shocks play a special role in periods characterized by adverse economic conditions.
We use three facets of freedom of choice (opportunity, decisional autonomy, and immunity from interference) to develop a freedom of choice index for 46 countries and test its impact on commonality in ...liquidity. We find that the three aspects of individual freedom of choice are negatively related to country-specific market liquidity commonality. Building on Sen’s (1993) theoretical framework, we document that in the presence of opportunities for making independent choices, immunity from encroaching activities, and decisional autonomy, investors tend to show less correlated trading decisions, measured by the levels of liquidity co-movement. To address possible endogeneity bias, we use 9/11 and country-level terrorist attacks as an exogenous source of variations to personal freedom of choice. We find that higher levels of perceived threats in a country restrain personal freedoms and tend to reduce freedom of choice effects on liquidity commonality. Our results are robust to alternative explanations, freedom of choice definitions, and model specifications.
This paper examines the effect of executive board gender diversity on the relationship between economic policy uncertainty (EPU) and bank liquidity hoarding (LH). We focus on the Russian banking ...sector, which, relative to most of the world, has a high share of women on bank executive boards. Using the news‐based EPU index developed by Baker, Bloom, and Davis (2016) and LH measures proposed by Berger, Guedhami, Kim, and Li (2022), we exploit a unique dataset from the Russian banking sector. While higher economic policy uncertainty tends to increase liquidity hoarding, we find that this effect diminishes as the gender diversity of the board increases. We attribute this finding to the moderating influence of gender diversity on stability and overreaction in decision‐making. Additionally, we find that the channel through which board gender diversity affects the impact of economic policy uncertainty on liquidity hoarding takes place via the hoarding of liquid assets. Our findings are robust to the use of alternative measures for economic policy uncertainty and gender diversity and hold after addressing endogeneity concerns. As women are still significantly under‐represented on bank boards in most countries, these results argue for policies to promote gender diversity on bank boards as a means of limiting the detrimental effects of economic policy uncertainty.
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