Liquidity Commonality During the Financial Crisis: Effects of News Announcements

50 Pages Posted: 11 Feb 2016

See all articles by Ya-Ting Chang

Ya-Ting Chang

National Central University

Yin-Feng Gau

National Central University; National Central University

Chih-Chiang Hsu

National Central University at Taiwan - Department of Economics

Date Written: February 10, 2016

Abstract

This paper investigate whether the effects of U.S. news announcements has influence on liquidity commonality during financial crisis periods. We construct a market-wide liquidity risk in the foreign exchange market by using Generalized Dynamic Factor Model (GDFM) model. We show that strong commonality in liquidity are associated with major crisis events. Our analysis also indicates that price volatility produced by U.S. macroeconomic news release are able to influence levels of commonality in liquidity. Furthermore, we find that quantitative easing policies injects high capital inflows into market to improve financial sector's funding liquidity, which might cause a decrease in commonality in liquidity. Finally, we present evidence that either from supply-side forces related to the funding liquidity and to investors' fear or from market volatility related to the dealer inventory cost and to news surprise, which have a significant influence on market-wide FX liquidity.

Keywords: Liquidity commonality ; Macroeconomic announcement; Monetary policy; Market Microstructure; Foreign exchange market

JEL Classification: F31; G15; C22

Suggested Citation

Chang, Ya-Ting and Gau, Yin-Feng and Gau, Yin-Feng and Hsu, Chih-Chiang, Liquidity Commonality During the Financial Crisis: Effects of News Announcements (February 10, 2016). Asian Finance Association (AsianFA) 2016 Conference, Available at SSRN: https://ssrn.com/abstract=2730556 or http://dx.doi.org/10.2139/ssrn.2730556

Ya-Ting Chang (Contact Author)

National Central University ( email )

No.300, Jhongda Road, Jhongli,Taoyuan 32001,Taiwan
Chung-Li Taiwan, 32054
Taiwan
+886910512521 (Phone)

Yin-Feng Gau

National Central University ( email )

Department of Finance, National Central Univesity
300 Jhongda Rd.
Jhongli, Taoyuan 32001
Taiwan
+886-3-4227151 ext. 66263 (Phone)
+886-3-4252961 (Fax)

National Central University ( email )

Department of Finance, National Central Univesity
300 Jhongda Rd.
Jhongli, Taoyuan 32001
Taiwan
+886-3-4227151 ext. 66263 (Phone)
+886-3-4252961 (Fax)

Chih-Chiang Hsu

National Central University at Taiwan - Department of Economics ( email )

No. 300, Zhongda Road
Chung-Li Taiwan, 32054
Taiwan
+886 3 4227151 (Phone)
+886 3 4222876 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
98
Abstract Views
951
Rank
485,733
PlumX Metrics