The Future of Money: Liquidity co-movement between financial institutions and real estate firms: evidence from China

Sheng Huang, Jonathan Williams and Ru Xie
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Sheng Huang: Bangor University
Ru Xie: Bangor University

No 17004, Working Papers from Bangor Business School, Prifysgol Bangor University (Cymru / Wales)

Abstract: The possibility of liquidity risk interdependence between financial institutions and real estate firms raises concern over financial stability. Changes in real estate liquidity conditions reflecting credit risks could increase bank liquidity risk due to untimely loan repayment. Liquidity risks can be amplified if liquidity shortfalls are not resolved. Using data from China from 2000 to 2014, and using three liquidity indicators to measure the impact of market capacity (liquidity depth), transaction costs (liquidity tightness) and market efficiency (liquidity resilience), a first result shows commonality or a two-way loop in liquidity risks between financial institutions and real estate firms. A second result indicates a positive and long run effect of the liquidity resilience of real estate firms on financial institutions. Liquidity risk transmission becomes prominent during episodes of market distress.

Date: 2017-09
New Economics Papers: this item is included in nep-ban, nep-cna, nep-pay and nep-tra
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