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An analysis of liquidity skewness for European sovereign bond markets

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  • Yan, Wei
  • Hamill, Philip
  • Li, Youwei
  • Vigne, Samuel A.
  • Waterworth, James

Abstract

We examine liquidity skewness by providing an analysis of bid-ask spreads for a comprehensive high-frequency dataset comprising Eurozone countries’ sovereign bonds. European sovereign bond markets exhibited increasing positive skewness over the sample period which was most extreme for Greece, Ireland and Portugal. We argue that positive skewness reflects decreased liquidity during volatile periods. We also report negative skewness in 2007. This can be explained by a feature of the limit-order book rubric of the MTS market where market-makers can submit limit-orders that are more competitive than the current best-price to reduce unwanted inventory without having to execute a market-order.

Suggested Citation

  • Yan, Wei & Hamill, Philip & Li, Youwei & Vigne, Samuel A. & Waterworth, James, 2018. "An analysis of liquidity skewness for European sovereign bond markets," Finance Research Letters, Elsevier, vol. 26(C), pages 274-280.
    • Handle: RePEc:eee:finlet:v:26:y:2018:i:c:p:274-280
    DOI: 10.1016/j.frl.2018.02.027
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    Cited by:

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    3. Lin, Zhongguo & Hamill, Philip A. & Li, Youwei & Sun, Zhuowei & Waterworth, James, 2020. "How did order-flow impact bond prices during the European Sovereign Debt Crisis?," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 13-24.
    4. Hamill, Philip A. & Li, Youwei & Pantelous, Athanasios A. & Vigne, Samuel A. & Waterworth, James, 2021. "Was a deterioration in ‘connectedness’ a leading indicator of the European sovereign debt crisis?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 74(C).
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    More about this item

    Keywords

    Liquidity; Skewness; Bid-ask spread; Sovereign bonds;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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