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Did Third Avenue's Liquidation Reduce Corporate Bond Market Liquidity?

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Abstract

The announced liquidation of Third Avenue’s high-yield Focused Credit Fund (FCF) on December 9, 2015, drew widespread attention and reportedly sent ripples through asset markets. Events of this kind have the potential to increase the demand for market liquidity, as investors revise expectations, reassess risk exposures, and fulfill the need to trade. Moreover, portfolio effects and general fears of contagion may increase the demand for liquidity in assets only remotely related to a liquidating firm’s direct holdings. In this post, we examine whether FCF’s announced liquidation affected liquidity and returns in broader corporate bond markets.

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  • Tobias Adrian & Michael J. Fleming & Erik Vogt & Zachary Wojtowicz, 2016. "Did Third Avenue's Liquidation Reduce Corporate Bond Market Liquidity?," Liberty Street Economics 20160219a, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87102
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    Cited by:

    1. Curatola, Giuliano, 2022. "Price impact, strategic interaction and portfolio choice," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).

    More about this item

    Keywords

    corporate bond market liquidity; asset managers; liquidity risk;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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