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Is market liquidity less resilient after the financial crisis? Evidence for us treasuries

Author

Listed:
  • Carmen Broto

    () (Banco de España)

  • Matías Lamas

    () (Banco de España)

Abstract

We analyse the market liquidity level and resilience of US 10-year Treasury bonds. Having checked that five indicators show inconclusive results on the liquidity level, we fit a bivariate CC-GARCH model to evaluate its resilience, that is, how liquidity reacts to financial shocks. According to our results, spillovers from liquidity volatility to returns volatility and viceversa are more intense after the crisis. Further, the volatility persistence of both returns and liquidity becomes lower after the crisis. These results are consistent with the existence of more frequent short-lived episodes of high volatility and more unstable liquidity that is more prone to evaporation.

Suggested Citation

  • Carmen Broto & Matías Lamas, 2019. "Is market liquidity less resilient after the financial crisis? Evidence for us treasuries," Working Papers 1917, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1917
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    Keywords

    market liquidity; volatility; US Treasuries; CC-GARCH model;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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