Is market liquidity less resilient after the financial crisis? Evidence for US treasuries
Series: Working Papers. 1917.
Author: Carmen Broto and Matías Lamas.
Published in: Economic Modelling. Volume 93, December 2020, Pages 217-229.
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Abstract
We analyse the market liquidity level and resilience of US 10-year Treasury bonds. Having
checked that five indicators show inconclusive results on the liquidity level, we fit a bivariate
CC-GARCH model to evaluate its resilience, that is, how liquidity reacts to financial shocks. According to our results, spillovers from liquidity volatility to returns volatility and vice versa are more intense after the crisis. Further, the volatility persistence of both returns and liquidity becomes lower after the crisis. These results are consistent with the existence of more frequent short-lived episodes of high volatility and more unstable liquidity that is more prone to evaporation.