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Global Funding Liquidity, Equity Returns and Crash Risk: Implications for Monetary Policy

  • Aidan Corcoran


    (Institute for International Integration Studies, Trinity College Dublin)

Monetary policy loosening and the associated impact on credit availability may have played a role in the present financial crisis. If such liquidity risk exists and is undiversifiable, then loose monetary policy should be associated with a risk premium. This paper tests for the existence of such a premium in US and global equity markets, in an asset pricing framework which accounts for endogeneity from equity prices to credit availability.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp318.

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Length: 29 pages
Date of creation: Feb 2010
Date of revision: Feb 2010
Handle: RePEc:iis:dispap:iiisdp318
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  1. Hanno Lustig & Nikolai Roussanov & Adrien Verdelhan, 2008. "Common Risk Factors in Currency Markets," NBER Working Papers 14082, National Bureau of Economic Research, Inc.
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  8. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  9. Isabelle Huault & V. Perret & S. Charreire-Petit, 2007. "Management," Post-Print halshs-00337676, HAL.
  10. Andrew Ang & Robert J. Hodrick & Yuhang Xing & Xiaoyan Zhang, 2004. "The Cross-Section of Volatility and Expected Returns," NBER Working Papers 10852, National Bureau of Economic Research, Inc.
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  13. Adalid, Ramón & Detken, Carsten, 2007. "Liquidity shocks and asset price boom/bust cycles," Working Paper Series 0732, European Central Bank.
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