International Illiquidity

Aytek Malkhozov, Philippe Mueller (), Andrea Vedolin and Gyuri Venter

No 1201, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We build a parsimonious international asset pricing model in which deviations of government bond yields from a fitted yield curve of a country measure the tightness of investors' capital constraints. We compute these measures at daily frequency for six major markets and use them to test the model-predicted effect of funding conditions on asset prices internationally. Global illiquidity lowers the slope and increases the intercept of the international security market line. Local illiquidity helps explain the variation in alphas, Sharpe ratios, and the performance of betting-against-beta (BAB) strategies across countries.

Keywords: Liquidity; Market Frictions; Capital Constraints; International CAPM (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2017-03
New Economics Papers: this item is included in nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1201

DOI: 10.17016/IFDP.2017.1201

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