Liquidity and volatility in the U.S. treasury market

Robert Engle, Michael Fleming, Eric Ghysels () and Giang Nguyen

No 590, Staff Reports from Federal Reserve Bank of New York

Abstract: We model the joint dynamics of intraday liquidity, volume, and volatility in the U.S. Treasury market, especially through the 2007-09 financial crisis and around important economic announcements. Using various specifications based on Bauwens and Giot?s (2000) Log- ACD(1,1) model, we find that liquidity, volume, and volatility are highly persistent, with volatility having a lower short-term persistence than the other two. Market liquidity and volume are important to explaining volatility dynamics but not vice versa. In addition, market dynamics change during the financial crisis, with all variables exhibiting increased responsiveness to their most recent realizations. Our models also reveal different market dynamics around announcements. Finally, we introduce new measures of liquidity risk that are useful for continually monitoring liquidity conditions and the risk of liquidity stress in the market.

Keywords: limit order book; volatility; liquidity; Treasury market; announcements; financial crisis (search for similar items in EconPapers)
JEL-codes: C58 G01 G12 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2012-12-01
New Economics Papers: this item is included in nep-ban and nep-mst
Note: Previous title: "Liquidity, Volatility and Flights to Safety in the U.S. Treasury Market: Evidence From A New Class of Dynamic Order Book Models"
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Citations: View citations in EconPapers (10)

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Journal Article: Liquidity and volatility in the U.S. Treasury market (2020)
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