On The Impact Of Fundamentals, Liquidity, And Coordination On Market Stability
AbstractComplex interactions between fundamentals and liquidity during unstable periods in financial markets are succinctly modeled with coordination games. We propose a flexible framework to estimate such a model and use the efficient method of moments as estimation procedure. We illustrate the model by using exchange rates from the yenâdollar carry trade induced uncertainty in 1998, interest rate spreads and global market volatility. The model fits the data well, with evidence of low information disparities, the market is generally very deep, where global volatility is more important than fundamental uncertainty in the determination of liquidity. There is clear evidence of asymmetry between the buy and sell sides of the market.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 52 (2011)
Issue (Month): 3 (08)
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Other versions of this item:
- Francisco Penaranda & Jon Danielsson, 2007. "On the Impact of Fundamentals, Liquidity and Coordination on Market Stability," FMG Discussion Papers dp586, Financial Markets Group.
- Francisco Peñaranda & Jón Daníelsson, 2007. "On the impact of fundamentals, liquidity and coordination on market stability," Economics Working Papers 1003, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2010.
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G - Financial Economics
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