Author: John Brendan McDermottPublisher:
ISBN:
Category : Investments
Languages : en
Pages : 0
Book Description
Essays on Liquidity in Financial Markets
Author: John Brendan McDermottPublisher:
ISBN:
Category : Investments
Languages : en
Pages : 0
Book Description
Essays in Liquidity
Author: Pamela C. MoultonEssays on Liquidity in Financial Markets
Author: Chitrupa Sudarshan FernandoPublisher:
ISBN:
Category :
Languages : en
Pages : 316
Book Description
Essays on Liquidity
Author: Lubomir PetrasekEssays on Liquidity in Macroeconomics
Author: Guido LorenzoniPublisher:
ISBN:
Category :
Languages : en
Pages : 146
Book Description
This thesis includes four essays on the macroeconomic effects of financial market imperfections. The first essay studies the incentives for banks that participate in an interbank market to keep a sufficient level of reserves. It presents a model where, in presence of imperfect insurance against bank-specific shocks, banks keep an inefficiently low ratio of reserves to deposits. A consequence of this is that the interest rate on the money market will fluctuate too much from a second-best perspective. It discusses the potential benefits and risks associated to central bank intervention, and highlights the complementarity between regulatory reserve requirements and stabilization of the interest rate. The second essay (joint with C. Hellwig) studies the ability of banks to issue liquid liabilities while holding only a fraction of their activities in liquid assets. We study the possibility of self-sustaining equilibria in which banks are prevented from abusing their issuing privilege by the threat of losing it in case of default. The third essay is a contribution to the empirics of precautionary savings and shows evidence of a decreasing relationship between household wealth and the variability of consumption expenditure. The evidence is consistent with the presence of a precautionary motive for wealth accumulation. The fourth essay (joint with F. Broner) shows that the time series of the spreads on emerging market bonds appears consistent with the view that international investors supplying funds to these countries are liquidity constrained at times of large price drops.
Essays on Liquidity in Financial Markets
Author: Jördis HengelbrockEssays on Liquidity in Financial Markets
Author: Pierre-Olivier WeillPublisher:
ISBN:
Category :
Languages : en
Pages : 358
Book Description
Essays on Liquidity and Risk
Author: Roland UmlauftPublisher:
ISBN:
Category :
Languages : en
Pages : 132
Book Description
In Chapter 1 I investigate the economic importance of correlation in mutual fund flows for funds with overlapping portfolio positions. I illustrate theoretically that commonality in trading by funds due to flow correlation influences the optimal portfolio. Furthermore, I show that the expected return from an asset for a specific agent is conditional on correlation of this particular asset holder's flows with his peers. Finally, I derive a theoretical upper bound of optimal flow correlation and hypothesize the existence of at least one optimal equilibrium outcome for any combination of pairwise fund flow correlations. Empirically, I introduce a measure of portfolio adjusted flow correlation and find that co-movement in flows can significantly deteriorate fund performance in the long-run, by about 1.4% annually between peer funds with high and low correlation, adjusted for style. Finally, I find that around one third of US mutual funds holds non-optimal portfolios as far as dynamic liquidity from correlated trading patterns is concerned. The research in Chapter 2 presents evidence for the existence of differences in asset beta risk in the liquidity cross-section of stocks. I argue that because of differences in liquidity (or trading cost), most trading activity is concentrated on the subset of liquid assets. In the presence of systematic wealth shocks this leads to an increase in beta risk for the liquid asset class beyond their true level of risk from the underlying dividend process with regard to the market risk factor. Vice-versa, the risk of illiquid assets becomes understated. Moreover, it is argued that a reduction of trading cost in the cross-section will reduce such differences and lead to a convergence of risk factor estimates towards the true value of underlying risk. Empirical evidence using data surrounding the tick-reduction event at the New York Stock Exchange is supporting this hypothesis. I find that beta estimates for liquid assets exceed their illiquid peers, while the difference in beta between the groups is significantly reduced after the exogenous trading cost reduction due to the tick-change event. In Chapter 3 I investigate asset liquidity surrounding fire-sale events by mutual funds. I develop revised method for identifying liquidity-driven sales. I find empirical evidence of both front running and liquidity provision surrounding liquidity-driven fire-sale events. Applying my identification method for sample selection I find significantly faster rates of return reversal compared to previous literature. Moreover, I show that asset liquidity measures return to their intrinsic values very shorty after a fire-sale. Finally, I show that a trading strategy of liquidity provision by outsiders provides economically significant returns.
Essays on Liquidity and Money
Author: Joonwon KimPublisher:
ISBN:
Category : Interest rates
Languages : en
Pages : 306
Book Description
Essays on Liquidity and Information
Author: Pablo Daniel KurlatPublisher:
ISBN:
Category :
Languages : en
Pages : 131
Book Description
This dissertation studies the interaction of liquidity and incomplete or asymmetric information. In Chapter 1, I study a dynamic economy with illiquidity due to adverse selection in financial markets. Investment is undertaken by borrowing-constrained entrepreneurs. They sell their past projects to finance new ones, but asymmetric information about project quality creates a lemons problem. The magnitude of this friction responds to aggregate shocks, amplifying the responses of asset prices and investment. Indeed, negative shocks can lead to a complete shutdown in financial markets. I then introduce learning from past transactions. This makes the degree of informational asymmetry endogenous and makes the liquidity of assets depend on the experience of market participants. Market downturns lead to less learning, worsening the future adverse selection problem. As a result, transitory shocks can create highly persistent responses in investment and output. In Chapter 2, I study why firms can choose to be illiquid. Optimal incentive schemes for managers may involve liquidating a firm following bad news. Fragile financial structures, vulnerable to runs, have been proposed as a way to implement these schemes despite their ex-post inefficiency. I show that in general these arrangements result in multiple equilibria and, even allowing arbitrary equilibrium selection, they do not necessarily replicate optimal allocations. However, if output follows a continuous distribution and creditors receive sufficiently precise individual early signals, then there exists a fragile financial structure such that global games techniques select a unique equilibrium which reproduces the optimal allocation. In Chapter 3, I study speculative attacks against illiquid firms. When faced with a speculative attack, banks and governments often hesitate, attempting to withstand the attack but giving up after some time, suggesting they have some ex-ante uncertainty about the magnitude of the attack they will face. I model that uncertainty as arising from incomplete information about speculators' payoffs and find conditions such that unsuccessful partial defenses are possible equilibrium outcomes. There exist priors over the distribution of speculators' payoffs that can justify any possible partial defense strategy. With Normal uncertainty, partial resistance is more likely when there is more aggregate uncertainty regarding agents' payoffs and less heterogeneity among them.