O'Sullivan, ConallConallO'SullivanPapavassiliou, Vassilios G.Vassilios G.Papavassiliou2020-02-252020-02-252020 Elsev2020-05Journal of Banking & Finance0378-4266http://hdl.handle.net/10197/11287The 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.enThis is the author’s version of a work that was accepted for publication in Journal of Banking & Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking and Finance (114, (2020)) DOI: https://doi.org/10.1016/j.jbankfin.2020.105777MicrostructureLiquidityEurozone debt crisisSovereign bond marketsCommon factorsLiquidity premiumC5G01G10G15Journal Article11410.1016/j.jbankfin.2020.1057772020-02-22R1825416/SPP/3347SF1258https://creativecommons.org/licenses/by-nc-nd/3.0/ie/