Liquidity Spillovers Across Assets Classes

54 Pages Posted: 10 Nov 2015 Last revised: 18 Feb 2016

See all articles by Christina Zafeiridou

Christina Zafeiridou

University of Michigan - Stephen M. Ross School of Business

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

Zafeiridou, Christina, Liquidity Spillovers Across Assets Classes (November 9, 2015). Available at SSRN: https://ssrn.com/abstract=2688263 or http://dx.doi.org/10.2139/ssrn.2688263

Christina Zafeiridou (Contact Author)

University of Michigan - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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