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Liquidity spillover in foreign exchange markets

Author

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  • Chang, Ya-Ting
  • Gau, Yin-Feng
  • Hsu, Chih-Chiang

Abstract

We use an index of spillover based on the generalized variance decomposition developed by Diebold and Yilmaz (2009, 2012) to measure the spillover in liquidity in currency markets between 2008 and 2015. The results show that the liquidity spillovers across nine major foreign exchange markets increase with global risk and funding constraint. We also find a substantial difference in the propagation pattern of liquidity between the funding currencies and investment currencies markets.

Suggested Citation

  • Chang, Ya-Ting & Gau, Yin-Feng & Hsu, Chih-Chiang, 2022. "Liquidity spillover in foreign exchange markets," Finance Research Letters, Elsevier, vol. 44(C).
    • Handle: RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001860
    DOI: 10.1016/j.frl.2021.102105
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Liquidity spillovers; European debt crisis; Global financial crisis; Market risk;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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