Funding liquidity risk and the volatility of U.S. municipal green bonds during the COVID-19 pandemic

Baris Kocaarslan

Finance Research Letters, 2023, vol. 58, issue PD

Abstract: This study adopts the funding liquidity–market liquidity model developed by Brunnermeier and Pedersen (2009) to investigate the relationship between funding liquidity risk and the volatility of U.S. municipal green bonds during the COVID-19 crisis, while also accounting for other potential risk factors. We observe that during high levels of municipal green bond volatility, the effect of funding liquidity risk on volatility is more pronounced than during periods of low municipal green bond volatility. Moreover, the response of municipal green bond volatility to a shock in the funding liquidity risk is stronger compared to a shock in other risk factors.

Keywords: Funding liquidity risk; Municipal green bonds; Volatility; Crisis times; Financial stress (search for similar items in EconPapers)
JEL-codes: C50 G10 Q42 Q43 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pd:s1544612323009327

DOI: 10.1016/j.frl.2023.104560

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