Drivers of Market Liquidity - Regulation, Monetary Policy or New Players?

This study investigates the impact of monetary policy on liquidity of Vietnam’s stock market from September 2007 to November 2014. Time series of liquidity are determined by monthly liquidity data for 643 enterprises in the surveyed period. Two variables of the monetary policy, including growth in money supply and interbank rate, are employed in VAR model along with four different measures of market liquidity. The results show that unexpected variance in the two monetary policy variables has no significant impact on the market liquidity, which, in turn, may be improved by the positive shocks of market returns, inflation, and growth in industrial production. Market variance does produce certain effects, but discrepancies occur in the signs of various liquidity measures.

Download Full-text

The ‘New Normal’ During Normal Times – Liquidity Regulation and Conventional Monetary Policy

SSRN Electronic Journal ◽

10.2139/ssrn.3763715 ◽

2021 ◽

Author(s):

Sînziana Kroon Petrescu ◽

Clemens Bonner ◽

Iman <!>van Lelyveld ◽

Jan Wrampelmeyer

Keyword(s):

Monetary Policy ◽

New Normal ◽

Liquidity Regulation

Download Full-text

Global liquidity risks a heavy slump in EMs

Emerald Expert Briefings ◽

10.1108/oxan-db207493 ◽

2015 ◽

Keyword(s):

Monetary Policy ◽

Financial Regulation ◽

Market Liquidity ◽

Bond Markets ◽

Content Type ◽

Sovereign Bonds ◽

Advanced Economies ◽

Boom And Bust ◽

Global Liquidity ◽

Boom And Bust Cycle

Subject Global liquidity trends. Significance Concerns over global liquidity have resurfaced since late 2014, both in advanced and emerging markets (EMs). Both central banks and the IMF note that market liquidity has declined, especially in bond markets, due to stricter regulations on derivatives trading in advanced economies, lower sovereign bonds demand in some countries and the end of the credit boom in some EMs. Global liquidity is a loosely defined concept that can be interpreted in different ways and covers a variety of countries and market realities. Impacts Liquidity is highly cyclical and follows a 'boom and bust' cycle. Accomodative monetary policy and financial regulation may partly offset the exposure to global liquidity volatility. US monetary policy tightening could exacerbate an EM crisis, where corporates have heavily issued dollar-denominated debt. The ECB monetary policy will remain accommodative until at least March 2017 partly offsetting risks of a global liquidity shortage.

Download Full-text

Stock and Bond Market Liquidity: A Long-Run Empirical Analysis

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109009090097 ◽

2009 ◽

Vol 44 (1) ◽

pp. 189-212 ◽

Cited By ~ 117

Author(s):

Ruslan Y. Goyenko ◽

Andrey D. Ukhov

Keyword(s):

Monetary Policy ◽

Market Liquidity ◽

Bond Markets ◽

Monetary Policy Shocks ◽

Short Term ◽

Flight To Quality ◽

Long Run ◽

Treasury Bond ◽

Policy Shocks ◽

Policy Impacts

AbstractThis paper establishes liquidity linkage between stock and Treasury bond markets. There is a lead-lag relationship between illiquidity of the two markets and bidirectional Granger causality. The effect of stock illiquidity on bond illiquidity is consistent with flight-to-quality or flight-to-liquidity episodes. Monetary policy impacts illiquidity. The evidence indicates that bond illiquidity acts as a channel through which monetary policy shocks are transferred into the stock market. These effects are observed across illiquidity of bonds of different maturities and are especially pronounced for illiquidity of short-term maturities. The paper provides evidence of illiquidity integration between stock and bond markets.

Download Full-text

Monetary Policy and its Impact on Stock Market Liquidity: Evidence from the Euro Zone

SSRN Electronic Journal ◽

10.2139/ssrn.1754366 ◽

2011 ◽

Cited By ~ 1

Author(s):

Octavio Fernández-Amador ◽

Martin Lukas Gächter ◽

Martin Larch ◽

Georg Peter

Keyword(s):

Monetary Policy ◽

Stock Market ◽

Market Liquidity ◽

Euro Zone ◽

Stock Market Liquidity

Download Full-text

The Costs and Benefits of Liquidity Regulations: Lessons from an Idle Monetary Policy Tool

Review of Finance ◽

10.1093/rof/rfab024 ◽

2021 ◽

Author(s):

Christopher J Curfman ◽

John Kandrac

Keyword(s):

Monetary Policy ◽

Financial Crisis ◽

Costs And Benefits ◽

High Quality ◽

Liquid Asset ◽

Lower Odds ◽

Credit Supply ◽

Policy Tool ◽

Regression Kink Design ◽

Liquidity Regulation

Abstract We investigate how liquidity regulations affect banks by examining a dormant monetary policy tool that functions as a liquidity regulation. For causal inference, we use a regression kink design that relies on the variation in a marginal high-quality liquid asset requirement around an exogenous threshold. We show that mandated increases in liquidity cause banks to reduce credit supply. Liquidity requirements also depress banks’ profitability, though some of the regulatory costs are passed on to liability holders. We document a prudential benefit of liquidity requirements by showing that banks subject to a higher requirement just before the financial crisis had lower odds of failure.

Download Full-text