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Treasury Bond Illiquidity and Global Equity Returns

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  • Goyenko, Ruslan
  • Sarkissian, Sergei

Abstract

In this study, using data from 46 markets and a 34-year time period, we examine the impact of the illiquidity of U.S. Treasuries on global asset valuation. We find that it predicts equity returns in both developed and emerging markets. This predictive relation remains intact after controlling for various world- and country-level variables. Asset pricing tests further reveal that bond illiquidity is a priced factor even in the presence of other conventional risks. Since the illiquidity of Treasuries is known to reflect monetary and macroeconomic shocks, our results suggest that it can be considered a proxy for aggregate worldwide risks.

Suggested Citation

  • Goyenko, Ruslan & Sarkissian, Sergei, 2014. "Treasury Bond Illiquidity and Global Equity Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 49(5-6), pages 1227-1253, December.
    • Handle: RePEc:cup:jfinqa:v:49:y:2014:i:5-6:p:1227-1253_00
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    Cited by:

    1. Stefan Fiesel & Marliese Uhrig-Homburg, 2016. "Illiquidity Transmission in a Three-Country Framework: A Conditional Approach," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 17(3), pages 261-284, December.
    2. Amir Akbari & Francesca Carrieri & Aytek Malkhozov, 2017. "Reversals in Global Market Integration and Funding Liquidity," International Finance Discussion Papers 1202, Board of Governors of the Federal Reserve System (U.S.).
    3. Aytek Malkhozov & Philippe Mueller & Andrea Vedolin & Gyuri Venter, 2017. "International Illiquidity," International Finance Discussion Papers 1201, Board of Governors of the Federal Reserve System (U.S.).
    4. Dungey, Mardi & Erdemlioglu, Deniz & Matei, Marius & Yang, Xiye, 2018. "Testing for mutually exciting jumps and financial flights in high frequency data," Journal of Econometrics, Elsevier, vol. 202(1), pages 18-44.
    5. Jieun Lee, 2018. "Who Improves or Worsens Liquidity in the Korean Treasury Bond Market?," Working Papers 2018-3, Economic Research Institute, Bank of Korea.

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