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Measuring and managing liquidity risk in the Hungarian practice

Author

Listed:
  • Balázs Árpád Szűcs

    (Corvinus University of Budapest, Department of Finance, Budapest, Hungary)

  • Kata Váradi

    (Corvinus University of Budapest, Department of Finance, Budapest, Hungary)

Abstract

The crisis that unfolded in 2007/2008 turned the attention of the financial world toward liquidity, the lack of which caused substantial losses. As a result, the need arose for the traditional financial models to be extended with liquidity. Our goal is to discover how Hungarian market players relate to liquidity. Our results are obtained through a series of semi-structured interviews, and are hoped to be a starting point for extending the existing models in an appropriate way. Our main results show that different investor groups can be identified along their approaches to liquidity, and they rarely use sophisticated models to measure and manage liquidity. We conclude that although market players would have access to complex liquidity measurement and management tools, there is a limited need for these, because the currently available models are unable to use complex liquidity information effectively.

Suggested Citation

  • Balázs Árpád Szűcs & Kata Váradi, 2014. "Measuring and managing liquidity risk in the Hungarian practice," Society and Economy, Akadémiai Kiadó, Hungary, vol. 36(4), pages 543-563, December.
    • Handle: RePEc:aka:soceco:v:36:y:2014:i:4:p:543-563
    Note: Acknowledgement: The authors thank the Budapest Stock Exchange and MSCI for their support. The interview series was supported by the Budapest Stock Exchange, the subsequent research was supported by MSCI. The authors also thank the interviewees for their cooperation. Finally, the authors thank Edina Berlinger, Ákos Gyarmati, Márton Michaletzky and Gábor Völgyes for assistance in conducting the interviews.
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    Keywords

    market liquidity; portfolio optimization; semi-structured interview;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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