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Measuring market liquidity in us fixed income markets: a new synthetic indicator

Author

Listed:
  • Carmen Broto

    (Banco de España)

  • Matías Lamas

    (Banco de España)

Abstract

We propose a new synthetic liquidity indicator that summarises the data on a broad set of market liquidity measures both for sovereign and corporate fixed income markets in the US. Our index is based on 17 variables that cover the main dimensions of market liquidity. The methodology used to calculate the index consists of two steps. First, a transformation of the individual liquidity measures is made, based on the methodology proposed by Holló et al. (2012) for the CISS (Composite Indicator of Systemic Stress). The transformed variables are then weighted using a principal component analysis. The indicator shows that liquidity in US fixed income markets has been impaired after the global financial crisis, mainly as a result of weaker liquidity conditions in US Treasury markets, whereas those in the corporate debt market remained stable.

Suggested Citation

  • Carmen Broto & Matías Lamas, 2016. "Measuring market liquidity in us fixed income markets: a new synthetic indicator," Working Papers 1608, Banco de España.
    • Handle: RePEc:bde:wpaper:1608
    as

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    References listed on IDEAS

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    Cited by:

    1. Broto, Carmen & Lamas, Matías, 2020. "Is market liquidity less resilient after the financial crisis? Evidence for US Treasuries," Economic Modelling, Elsevier, vol. 93(C), pages 217-229.
    2. Boneva, Lena & Islami, Mevlud & Schlepper, Kathi, 2021. "Liquidity in the German corporate bond market: Has the CSPP made a difference?," Discussion Papers 08/2021, Deutsche Bundesbank.
    3. Diego Alejandro Martínez-Cruz, 2021. "Indicador Combinado de Liquidez para la Deuda Pública Local Colombiana," Borradores de Economia 1167, Banco de la Republica de Colombia.
    4. Díaz, Antonio & Escribano, Ana, 2022. "Liquidity dimensions in the U.S. corporate bond market," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1163-1179.
    5. Woradee Jongadsayakul, 2023. "The Launch of a Night Trading Session and Currency Futures Market Liquidity: Evidence from the Thailand Futures Exchange," JRFM, MDPI, vol. 16(10), pages 1-15, October.
    6. Díaz, Antonio & Escribano, Ana, 2020. "Measuring the multi-faceted dimension of liquidity in financial markets: A literature review," Research in International Business and Finance, Elsevier, vol. 51(C).
    7. María Isabel Cambón Murcia & José Luis Cano Coello & Jesús González Redondo, 2017. "Measuring liquidity of Spanish debt," CNMV Working Papers CNMV Working Papers no. 6, CNMV- Spanish Securities Markets Commission - Research and Statistics Department.

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    More about this item

    Keywords

    market liquidity; synthetic index; principal component analysis; US fixed income markets.;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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