Funding liquidity shocks and market liquidity providers

Doojin Ryu; Robert I. Webb; Jinyoung Yu

doi:10.1016/j.frl.2022.102734

Funding liquidity shocks and market liquidity providers

Doojin Ryu, Robert I. Webb, Jinyoung Yu^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

7 Citations (Scopus)

Abstract

We examine the relationship between funding liquidity and stock market liquidity. Positive (negative) funding liquidity shocks enhance market liquidity for medium-sized (large and small) firms before Korea adopts the Basel III accord, whereas changes in funding liquidity, in general, precedes changes in market liquidity afterward. The regime-dependent relationship is attributed to the change in domestic individuals’ reaction to funding liquidity shocks. Domestic investors act as liquidity providers for the overall market as funding liquidity improves, while foreigners only trade shares of small firms in response to funding liquidity shocks.

Original language	English
Article number	102734
Journal	Finance Research Letters
Volume	47
DOIs	https://doi.org/10.1016/j.frl.2022.102734
Publication status	Published - Jun 2022
Externally published	Yes

Keywords

Basel III
Funding liquidity
Investor type
Stock market liquidity

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10.1016/j.frl.2022.102734

Cite this

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title = "Funding liquidity shocks and market liquidity providers",

abstract = "We examine the relationship between funding liquidity and stock market liquidity. Positive (negative) funding liquidity shocks enhance market liquidity for medium-sized (large and small) firms before Korea adopts the Basel III accord, whereas changes in funding liquidity, in general, precedes changes in market liquidity afterward. The regime-dependent relationship is attributed to the change in domestic individuals{\textquoteright} reaction to funding liquidity shocks. Domestic investors act as liquidity providers for the overall market as funding liquidity improves, while foreigners only trade shares of small firms in response to funding liquidity shocks.",

keywords = "Basel III, Funding liquidity, Investor type, Stock market liquidity",

author = "Doojin Ryu and Webb, {Robert I.} and Jinyoung Yu",

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year = "2022",

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language = "English",

volume = "47",

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AB - We examine the relationship between funding liquidity and stock market liquidity. Positive (negative) funding liquidity shocks enhance market liquidity for medium-sized (large and small) firms before Korea adopts the Basel III accord, whereas changes in funding liquidity, in general, precedes changes in market liquidity afterward. The regime-dependent relationship is attributed to the change in domestic individuals’ reaction to funding liquidity shocks. Domestic investors act as liquidity providers for the overall market as funding liquidity improves, while foreigners only trade shares of small firms in response to funding liquidity shocks.

KW - Basel III

KW - Funding liquidity

KW - Investor type

KW - Stock market liquidity

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DO - 10.1016/j.frl.2022.102734

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SN - 1544-6123

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JO - Finance Research Letters

JF - Finance Research Letters

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ER -

Funding liquidity shocks and market liquidity providers

Abstract

Keywords

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