Liquidity Spillovers Across Assets Classes
54 Pages Posted: 10 Nov 2015 Last revised: 18 Feb 2016
Date Written: November 9, 2015
Abstract
Liquidity spillovers -- i.e., the transmissions of liquidity shocks from one asset to another -- are an important yet not fully understood feature of price formation in financial markets. In this paper, I examine liquidity spillovers across four asset classes traded in U.S. futures markets: Oil, Treasuries, Eurodollar, and S&P500. Using a reduced-form VAR, I find significant evidence of liquidity spillovers across these assets, especially during periods of financial and macroeconomic turmoil. My findings also suggest that these spillovers are driven by liquidity supply channels (as opposed to information channels): when liquidity providers face higher funding constraints, liquidity spillovers across assets increase.
Keywords: Liquidity, Liquidity Spillovers, Price Impact, Futures, Funding Constraints
JEL Classification: G12, G13
Suggested Citation: Suggested Citation