From Funding Liquidity to Market Liquidity: Evidence from Danish Bond Markets

Jens Dick-Nielsen, Jesper Lund, Jacob Gyntelberg

Publikation: KonferencebidragPaperForskningpeer review

Resumé

This paper shows empirically that funding liquidity drives market liquidity. As it becomes harder to secure term funding in the money markets, liquidity deteriorates in the Danish bond market. We show that the first principal component of bond market liquidity is driven by the market makers' ability to obtain funding. This effect holds true across both long and short term, government and covered bonds. We use MiFID data which provides a complete transaction level dataset for the Danish market covering both the subprime crisis and the Euro sovereign crisis. Furthermore, we verify the findings for other European government bonds using MTS data. The findings suggest that regulatory bond based liquidity buffers for banks will have limited effectiveness.
OriginalsprogEngelsk
Publikationsdato2014
Antal sider48
StatusUdgivet - 2014
BegivenhedMidwest Finance Association 2014 Annual Meeting - Hyatt Regency , Orlando, FL, USA
Varighed: 6 mar. 20148 mar. 2014
Konferencens nummer: 63
https://www.openconf.org/MidwestFinance2014/openconf.php

Konference

KonferenceMidwest Finance Association 2014 Annual Meeting
Nummer63
LokationHyatt Regency
LandUSA
ByOrlando, FL
Periode06/03/201408/03/2014
Internetadresse

Emneord

  • Market liquidity
  • Funding liquidity
  • Government bonds
  • Covered bonds
  • Money markets

Citer dette

Dick-Nielsen, J., Lund, J., & Gyntelberg , J. (2014). From Funding Liquidity to Market Liquidity: Evidence from Danish Bond Markets. Afhandling præsenteret på Midwest Finance Association 2014 Annual Meeting , Orlando, FL, USA.
Dick-Nielsen, Jens ; Lund, Jesper ; Gyntelberg , Jacob . / From Funding Liquidity to Market Liquidity : Evidence from Danish Bond Markets. Afhandling præsenteret på Midwest Finance Association 2014 Annual Meeting , Orlando, FL, USA.48 s.
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Dick-Nielsen, J, Lund, J & Gyntelberg , J 2014, 'From Funding Liquidity to Market Liquidity: Evidence from Danish Bond Markets' Paper fremlagt ved Midwest Finance Association 2014 Annual Meeting , Orlando, FL, USA, 06/03/2014 - 08/03/2014, .

From Funding Liquidity to Market Liquidity : Evidence from Danish Bond Markets. / Dick-Nielsen, Jens; Lund, Jesper; Gyntelberg , Jacob .

2014. Afhandling præsenteret på Midwest Finance Association 2014 Annual Meeting , Orlando, FL, USA.

Publikation: KonferencebidragPaperForskningpeer review

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N2 - This paper shows empirically that funding liquidity drives market liquidity. As it becomes harder to secure term funding in the money markets, liquidity deteriorates in the Danish bond market. We show that the first principal component of bond market liquidity is driven by the market makers' ability to obtain funding. This effect holds true across both long and short term, government and covered bonds. We use MiFID data which provides a complete transaction level dataset for the Danish market covering both the subprime crisis and the Euro sovereign crisis. Furthermore, we verify the findings for other European government bonds using MTS data. The findings suggest that regulatory bond based liquidity buffers for banks will have limited effectiveness.

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Dick-Nielsen J, Lund J, Gyntelberg J. From Funding Liquidity to Market Liquidity: Evidence from Danish Bond Markets. 2014. Afhandling præsenteret på Midwest Finance Association 2014 Annual Meeting , Orlando, FL, USA.