Options
On the term structure of liquidity in the European sovereign bond market
Date Issued
2020-05
Date Available
2020-02-25T16:47:29Z
Abstract
The paper provides a high-frequency analysis of liquidity dynamics in the eurozone sovereign bond market over tranquil and crisis periods. We study time series of liquidity across the yield curve using high-frequency data from MTS, one of Europe’s leading electronic fixed-income trading platforms. We document flight-to-liquidity effects as investors prefer to trade on shorter-term benchmarks during liquidity dry-ups. We provide evidence of significant commonalities in spread and depth liquidity proxies which are weaker during the crisis period for both core and periphery economies although periphery countries display higher commonality than core countries during the crisis. We show that illiquidity of the periphery countries plays an important role in market dynamics and Granger causes illiquidity, volatility, returns, and CDS spreads across the maturity spectrum in both calm and crisis periods. Liquidity is priced both as a characteristic and as a risk factor even when controlling for credit risk, pointing to liquidity’s systematic dimension and importance.
Sponsorship
Science Foundation Ireland
University College Dublin
Other Sponsorship
New York University (NYU) Tandon’s Finance and Risk Engineering
Type of Material
Journal Article
Publisher
Elsevier
Journal
Journal of Banking & Finance
Volume
114
Copyright (Published Version)
2020 Elsevier
Classification
C5
G01
G10
G15
Language
English
Status of Item
Peer reviewed
ISSN
0378-4266
This item is made available under a Creative Commons License
File(s)
No Thumbnail Available
Name
OSullivan_Papavassiliou_2020_Latex.pdf
Size
528.71 KB
Format
Adobe PDF
Checksum (MD5)
41a93401c94f0c8ccb859fef75e318a7
Owning collection
Mapped collections