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Has Liquidity Risk in the Treasury and Equity Markets Increased?

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Abstract

Market participants have argued that market liquidity has deteriorated since the financial crisis. However, inspection of common metrics such as bid-ask spreads, market depth, and price impact do not show pronounced reductions in liquidity compared with precrisis levels. In this post, we argue that recent changes in liquidity conditions may best be described in terms of heightened liquidity risk, as opposed to general declines in liquidity levels. We propose a measure that shows liquidity risk has risen in equity and Treasury markets and discuss some factors behind the increase.

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  • Tobias Adrian & Michael J. Fleming & Daniel Stackman & Erik Vogt, 2015. "Has Liquidity Risk in the Treasury and Equity Markets Increased?," Liberty Street Economics 20151006a, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87067
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    Cited by:

    1. Erik Vogt & Michael Fleming & Or Shachar & Tobias Adrian, 2017. "Market Liquidity After the Financial Crisis," Annual Review of Financial Economics, Annual Reviews, vol. 9(1), pages 43-83, November.
    2. Bicu-Lieb, Andreea & Chen, Louisa & Elliott, David, 2020. "The leverage ratio and liquidity in the gilt and gilt repo markets," Journal of Financial Markets, Elsevier, vol. 48(C).
    3. Bicu, Andreea & Chen, Louisa & Elliott, David, 2017. "The leverage ratio and liquidity in the gilt and repo markets," Bank of England working papers 690, Bank of England, revised 19 Dec 2017.
    4. 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.
    5. Carmen Broto & Matías Lamas, 2016. "Measuring market liquidity in us fixed income markets: a new synthetic indicator," Working Papers 1608, Banco de España.

    More about this item

    Keywords

    volatility risk; liquidity risk; market liquidity;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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