Sentiment-dependent impact of funding liquidity shocks on futures market liquidity

Doojin Ryu, Jinyoung Yu*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)


We examine the effect of funding liquidity changes on futures market liquidity, depending on economic sentiment. Futures market liquidity improves following negative funding liquidity shocks, and economic sentiment is an important determinant explaining this relationship. While individuals' trading is most significantly affected by sentiment, its response to funding liquidity shocks remains independent of sentiment effects. Domestic institutions' reactions depend on the sentiment regime; they trade futures contracts more actively as funding liquidity becomes more abundant (scarcer) when sentiment is more pessimistic (optimistic). Foreigners, following negative funding liquidity shocks, generally increase their futures trading, whereas their trading decreases under the extremely pessimistic sentiment. Domestic banks and pension funds provide liquidity to the futures market even when sentiment is pessimistic.

Original languageEnglish
Pages (from-to)61-76
Number of pages16
JournalJournal of Futures Markets
Issue number1
Publication statusPublished - Jan 2022
Externally publishedYes


  • funding liquidity
  • index futures market
  • investor type
  • market liquidity
  • news sentiment


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