Authors: Nina Boyarchenko, Domenico Giannone, and Or Shachar
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Staff Reports
Flighty Liquidity
Number 870
October 2018 Revised March 2019
October 2018 Revised March 2019
JEL classification: C22, G12, G17
We study how the risks to future liquidity flow across corporate bond, Treasury, and stock markets. We document distribution “flight-to-safety” effects: a deterioration in the liquidity of high-yield corporate bonds forecasts an increase in the average liquidity of Treasury securities and a decrease in uncertainty about the liquidity of investment-grade corporate bonds. While the liquidity of Treasury securities both affects and is affected by the liquidity in the other two markets, corporate bond and equity market liquidity appear to be largely divorced from each other. Finally, we show that measures of market-wide volatility and market-maker constraints do not contain information useful for predicting the distribution of future liquidity over and above that contained in the recent history of bid-ask spreads.
Author Disclosure Statement(s)
Nina Boyarchenko
The author declares that she has no relevant or material financial interests that relate to the research described in this paper. FINRA reviewed the results of the study prior to their dissemination to ensure that the confidentiality of the data was not unintentionally compromised. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Domenico Giannone
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. FINRA reviewed the results of the study prior to their dissemination to ensure that the confidentiality of the data was not unintentionally compromised. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Or Shachar
The author declares that she has no relevant or material financial interests that relate to the research described in this paper. FINRA reviewed the results of the study prior to their dissemination to ensure that the confidentiality of the data was not unintentionally compromised. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
The author declares that she has no relevant or material financial interests that relate to the research described in this paper. FINRA reviewed the results of the study prior to their dissemination to ensure that the confidentiality of the data was not unintentionally compromised. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Domenico Giannone
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. FINRA reviewed the results of the study prior to their dissemination to ensure that the confidentiality of the data was not unintentionally compromised. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Or Shachar
The author declares that she has no relevant or material financial interests that relate to the research described in this paper. FINRA reviewed the results of the study prior to their dissemination to ensure that the confidentiality of the data was not unintentionally compromised. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
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